Preamble

The House met at half-past Two o'clock

PRAYERS

[MR. SPEAKER in the Chair]

PRIVATE BUSINESS

FELIXSTOWE DOCK AND RAILWAY BILL. (By Order)

Order for further consideration, as amended, read.

To be further considered upon Thursday 24 July.

TEIGNMOUTH QUAY COMPANY BILL. (By Order)

SHOREHAM PORT AUTHORITY BILL. (By Order)

PLYMOUTH CITY COUNCIL BILL [LORDS] (BY ORDER)

BEXLEY LONDON BOROUGH COUNCIL BILL (By Order)

Orders for Second reading read.

To be read a Second time upon Thursday 24 July.

WESTERN ISLES ISLANDS COUNCIL (BERNERAY HARBOUR) ORDER CONFIRMATION BILL

Read the Third time, and passed.

Oral Answers to Questions — NATIONAL FINANCE

Unemployment Costs

Mr. Boyes: asked the Chancellor of the Exchequer what is his latest estimate of the annual cost to the Exchequer of the present level of unemployment.

The Chief Secretary to the Treasury (Mr. John MacGregor): The overall cost to the Exchequer of unemployment and supplementary benefit paid to the unemployed is estimated to be £5·6 billion in 1986–87. In addition, it is estimated that £1·15 billion will be paid in housing benefit, a benefit which can continue to be paid if the claimant finds employment.

Mr. Boyes: Will the Minister accept that my constituency will find that figure shocking, outrageous and wholly abhorrent because it has a large number of people unemployed, including skilled building workers, when we desperately need a new hospital in Washington, new council houses in the borough of Sunderland and new factories in Hetton and Houghton? Is this not just another example of the fact that the Government simply do not care?

Mr. MacGregor: Not at all. The hon. Gentleman referred to new hospitals.

Mr. Boyes: Not in my constituency.

Mr. Speaker: Order.

Mr. MacGregor: The hon. Gentleman will know that the Government have a record on hospital building that is far better than under the previous Government and that expenditure on the Health Service is well up in real terms. He will also know that if we followed a prescription of very high public expenditure programmes, well beyond the ones that we are pursuing at the moment, the effect on real jobs in the economy, given the precarious situation we are in now with the massive fall in oil prices—

Mr. Hoyle: Precarious?

Mr. MacGregor: Let me explain. There is a precarious situation in the world economy where, with a fall in oil prices, if one does not pursue prudent economic policies, we could easily have higher levels of unemployment. That is what is precarious. If the hon. Member for Houghton and Washington (Mr. Boyes) pursued very high public spending policies, such as the Labour Opposition are suggesting, it would undoubtedly lead to a much bigger increase in unemployment and a loss of real jobs.

Mr. Neil Hamilton: Is it not infantile for hon. Members, such as the hon. Member for Houghton and Washington (Mr. Boyes), to imply that unemployment can he reduced overall by expanding public spending, because public spending has to be paid for by increases in taxes, by interest rates, or by inflation? Every one of those will increase unemployment, not reduce it.

Mr. MacGregor: My hon. Friend is quite right. In a world in which conditions can fluctuate very quickly, it has been our prudent economic policies which have enabled us to come through the massive fall in oil prices unscathed and which have also enabled over 1 million new jobs to be created in this country since the last election.

Mr. Meadowcroft: Will the Minister give us the full figures, not just the three he has given for unemployment, which include the loss of taxation, the loss of national insurance and increased health costs? Does he agree with the House of Lords Select Committee figure, confirmed by Professor Adrian Sinfield and others, that the true cost of unemployment is at least double what he says, and that it costs about £6,000 per year for each adult?

Mr. MacGregor: I do not agree at all. It is difficult to make any calculations of that sort. It depends on what levels of earnings are assumed for those who come off the unemployment register to take jobs. It depends on a number of other factors, including the effect that increased public expenditure, and therefore increased taxation or increased borrowing, have on real jobs in the economy. It depends on a whole range of things.

Mr. Nicholls: Is not the basis of this question even dafter than my hon. Friend the Member for Talton (Mr. Hamilton) suspected? If the hon. Member for Houghton and Washington (Mr. Boyes) had his way, either the people working on job creation schemes would have to be paid realistic wages, in which case there would he a truly massive increase in public expenditure, or the same amount of money would have to go round, and that would mean that some people would wind up without unemployment benefit.

Mr. MacGregor: Far too many simple assumptions are made about the relationship between unemployment benefits and how one can get people off the unemployment register. The prudent economic policies that we have been


pursuing, which include £2·4 billion of expenditure on employment and training measures this year, is the right way to ensure steady progress and steady economic growth, and therefore an increase in real jobs.

Mr. Blair: Will the Chief Secretary comment on the latest unemployment statistics today, which show, on his own Government's figures, an underlying rise of 10,000 to 15,000 people every month on the unemployment register? Why does he not admit that after seven years in government his party has nothing to offer the unemployed except pious hopes and fiddled figures?

Mr. MacGregor: The hon. Gentleman will know that unemployment has been rising in nearly every country—certainly, every advanced industrial country. He will also know that the levels of youth unemployment here are well below the average in Europe, and that 1 million extra new jobs have been created in this country since the election. We are all extremely concerned about the level of unemployment, but it is necessary to get the right policies to ensure that it comes down.

Taxation and Unemployment

Mr. Straw: asked the Chancellor of the Exchequer what comparative information is available to him on the relationship in Organisation for Economic Co-operation and Development countries, between the burden of taxation and unemployment.

Mr. MacGregor: High taxation inhibits job creation in other OECD countries, just as in the United Kingdom.

Mr. Straw: Why does the Chief Secretary continue to mislead the House and the country about the relationship between unemployment and taxation? Has he not worked out yet that Britain's unemployment record is the worst of any of the major OECD countries, but that a number of major OECD countries have higher tax burdens and lower unemployment?

Mr. MacGregor: I am not misleading the country or the House on the first point that the hon. Gentleman made. With regard to other OECD countries, the hon. Gentleman will know that in making those comparisons one also has to look at comparative economies. When one looks at advanced economies, it is not without significance that Japan and the United States, countries with the highest growth records, also have the lowest levels of taxation. If the hon. Gentleman wants to refer to the OECD, let me refer him to the recent communiqué of OECD Ministers, which stated:
the control of public expenditures and budget deficits is essential to establish a stable domestic financial environment and to promote a durable reduction in real interest rates which will help private investment to expand and thus promote sustained growth worldwide.
And that means jobs.

Mr. Forman: In view of the many different and complicated causes of unemployment in the OECD countries, does my right hon. Friend accept that one of the characteristics of both the Japanese and the American economies is that, through prudent policies, they have managed to maintain a relatively low burden of taxation and borrowing, which has contributed to low inflation rates, which has been good for jobs?

Mr. MacGregor: I am sure that my hon. Friend is right. Some of the studies that I have seen, which examine those

matters, fail to take into account the effect on the supply side of a policy of lower taxation, which encourages enterprise and, in the long run, undoubtedly produces the jobs which a high expenditure policy would not.

Economic Policy

Mr. Andrew F. Bennett: asked the Chancellor of the Exchequer when he next plans to meet his Group 5 colleagues to discuss the co-ordination of economic policies.

The Economic Secretary to the Treasury (Mr. Ian Stewart): The Finance Ministers of the Group of Five nations meet from time to time to discuss their economic policies and prospects.

Mr. Bennett: Does the Minister accept that one of the major problems facing the world is that of Third world countries' debt repayment? What have the Government done to help with that problem in the past few years? Is there anything that the Government can claim that they have achieved in that area? What is the hon. Gentleman pressing the other five countries to do to ease the problems of the debt of Third world countries? Does he accept that until we find a solution, things such as Sport Aid and all the other assistance from the Western world are as naught compared to those debt problems?

Mr. Stewart: As the hon. Gentleman will know, these problems are more generally discussed through the forum of the International Monetary Fund and the World Bank rather than within the Group of Five. I am happy to respond to his question about the United Kingdom's contribution. Not only do we have a substantial overseas aid budget, but we have, in the case of several African countries, converted loans into outright grants. We have also taken part in discussions through international organisations which have led to the fulfilment of one of the aspects of the Baker plan, which has not perhaps received as much attention as it might, which is that the World Bank is now concentrating more of its resources, not on project lending, but on structural adjustment loans. Since the IMF meeting last year, $2·7 billion has been provided by that means in 10 loans to eight different countries.

Mr. Merchant: Is it not of greater significance that since the last G5 meeting the British economy has weathered the oil crisis elsewhere without any serious crisis, just as it weathered the miners' strike? Is this not a tribute to the underlying strength of the British economy and should that not be brought to the attention of the G5 nations?

Mr. Stewart: My hon. Friend is absolutly correct in that analysis. I am equally sure that other members of G5 recognise the importance of my right hon. Friend the Chancellor of the Exchequer following such sound and successful financial policies.

Mr. Campbell-Savours: Does the Minister think that one day perhaps the Western taxpayer will pick up the bill and pay for the Third world debt?

Mr. Stewart: The Western taxpayer already makes extensive contributions through national Government programmes. I have no doubt that it is right that international institutions should be the route whereby the international debt problem is resolved. The right approach is to continue to consider these matters on a case-by-case basis, which has served us well so far.

Charities

Mr. Alan Howarth: asked the Chancellor of the Exchequer how much extra charitable giving he now expects to result from his Budget measures.

The Financial Secretary to the Treasury (Mr. Norman Lamont): Depending on the public response to the Budget proposals, it could be £120 million or even more.

Mr. Howarth: I thank my right hon. Friend for giving that dramatically encouraging figure. Will he confirm that the Government's tax concessions are geared, in that they materialise when private donations worth twice as much are made? Does he agree that enlisting charitable donations in partnership with direct public provision is a thoroughly useful and practical way of mobilising additional resources of money and dedicated people to help tackle the problems of social need?

Mr. Lamont: I agree with my hon. Friend. It is the Government's policy to encourage private giving. The figure that I gave is merely an estimate. It could be more. It is up to us as politicians to encourage people to take advantage of the unprecedented generous reliefs.

Mr. Ashton: Do the Government regard the giving of free school dinners to the children of the unemployed as charity? If so, why are they stopping local councils from having the discretion to do that? Why is there one rule for those charities in which the Government believe and another rule for the charities in which local councils believe?

Mr. Lamont: The hon. Gentleman's point has nothing to do with this question. The main question is about tax relief for private charities. I am only sorry that the hon. Gentleman does not see fit to welcome a provision that is welcomed by voluntary organisations in this country.

Mr. Thurnham: Does my right hon. Friend agree that it is now up to businesses and charities to develop closer links to take full advantage of the new scheme?

Mr. Lamont: I agree completely with my hon. Friend. Charities have very much welcomed this development. It was widely agreed that the last Budget was the best Budget ever for charities.

Income Tax and National Insurance

Mr. Chapman: asked the Chancellor of the Exchequer what percentage of his gross wage a single person earning £100 per week pays in income tax and national insurance contributions.

Mr. Norman Lamont: Twenty five per cent.

Mr. Chapman: Although I appreciate that there has been a significant reduction in the tax liability of the low-paid under this Government, will my right hon. Friend confirm that it must continue to be a top priority of the Government further to reduce these tax levels, bearing in mind that a person on only half average earnings must pay a quarter of his gross salary in tax? Is that not another reason why we must control public expenditure?

Mr. Lamont: My hon. Friend is correct. He will recall that my right hon. Friend the Prime Minister said in the House on 10 July that it was the Government's objective to reduce the burden of tax for those on average earnings or the lower paid. Anyone reflecting on these matters

would realise that, given certain events on the other side of the Atlantic, lower-paid workers in this country might pay a higher marginal rate than American multimillionaires. Tax cuts matter to the lower-paid. It is rather surprising that the Opposition do not give them a higher priority.

Mr. Penhaligon: Will the Minister confirm that the Government have changed the position so that less tax is now paid on an unearned £100 than on an earned £100? Can he explain the logic of that?

Mr. Lamont: We have rightly got rid of the investment income surcharge, because it was a tax on savings. The hon. Gentleman implies that there should be national insurance contributions on unearned income. That would mean that there would be no national insurance contributions, as such, but rather a social security tax. Why does he not put it that way?

Mr. Dorrell: Is it not a fact that, in addition to taxing national insurance, incentives for many people on £100 a week are also directly affected by the tapers of means-tested social security benefits? Can my right hon. Friend assure the House that in deciding those tapers, the incentive effect, when coupled with tax and national insurance, is taken into account?

Mr. Lamont: My hon. Friend is absolutely right. This is an extremely serious matter and it is one of the problems that my right hon. Friend the Secretary of State for Social Services has been addressing. We have taken some steps to meet this problem, but of course we have not solved it. We regard it as an important matter.

Mr. Hattersley: If the Government are so concerned about reducing taxes for the lower paid, why is it that over the past seven years taxes have increased for virtually everybody earning less than £500 a week and decreased for literally everybody earning more than £500 a week, as was revealed in the Minister's predecessor's answer on 20 April?

Mr. Lamont: Compared with the 1978–79 indexed regime, the proportion of incomes taken in tax and national insurance contributions is lower for every group except those on half average earnings. That one group is the exception. Below that level the proportion compares favourably with the 1978–79 indexed regime.

Profit-related Pay Schemes

Mr. Forth: asked the Chancellor of the Exchequer what progress he is making with his discussions about profit-related pay schemes.

The Chancellor of the Exchequer (Mr. Nigel Lawson): A Green Paper on profit-related pay was published on Tuesday and has been widely welcomed.

Mr. Forth: I thank my right hon. Friend for that reply. Will he confirm that profit-related pay forms a substantial element of remuneration in Japan? Does he not regard that as a most encouraging precedent for his scheme and this country? Is he, therefore, able to proceed with speed and confidence towards the fulfilment of a similar position in this country?

Mr. Lawson: My hon. Friend makes an important point. It is customary in Japanese industry for the average Japanese employee to have a sizeable part of his total


remuneration in performance bonuses, which are linked to the profitability of the company. I have little doubt that that has a positive effect on industrial relations in Japan, on the identification of employees with their companies, and on the low unemployment rate that Japan enjoys.

Mr. Skinner: How will a nurse working in the National Health Service benefit from one of these schemes?

Mr. Lawson: A nurse working in the NHS will benefit from the better performance of the national economy, and that is what the scheme is about.

Mr. Penhaligon: Is the Chancellor's main attraction to this scheme the idea of getting people involved in the profitability of their company, with which I would certainly concur, or is it the possibility that it might keep down pay claims?

Mr. Lawson: There are two objectives. One is certainly to improve identification and motivation among employees, and I am glad that the hon. Gentleman, on behalf of the Liberal party, supports that. Secondly, the scheme has a beneficial effect on pay flexibility. One of the difficulties in the United Kingdom is the excessive rigidity of our pay bargaining system. The introduction of greater flexibility in this way will be beneficial, not least to those who are at present out of work.

Share Ownership

Mr. Leigh: asked the Chancellor of the Exchequer what representations he has received seeking additions to his proposals to extend direct ownership of equity shares.

Mr. Norman Lamont: Some modifications to the personal equity plan have been suggested, but most have warmly welcomed the scheme as it stands.

Mr. Leigh: Does my right hon. Friend agree that, following the achievement of a property owning democracy, our central aim as Conservatives should be to achieve a share-owning society in which the majority, not just a small minority, of British people are given a real stake in the ownership of British industry? In that light, has he reached a decision on the limits which will apply to investments in unit trusts, investment trusts and the personal equity plan, and will he be as generous as possible?

Mr. Lamont: My hon. Friend should know that I am answering a written question today whereby the limit on investment in authorised unit trusts and approved investment trust companies under the scheme will be £420 a year or 25 per cent. of the investor's annual—

Mr. Campbell-Savours: Order. That is a written answer.

Mr. Speaker: Yes. Unusual. Mr. Nellist.

Mr. Nellist: As for the question from the hon. Member for Gainsborough and Horncastle (Mr. Leigh) regarding a share-owning democracy, is the Minister aware that 467 shareholders own more than two-thirds of the shares of Cable and Wireless? Any other investigation of privatisation in the past seven years under this Tory Government would show that rather than creating a share owning democracy — the public as a whole had previously owned these industries — a smaller and smaller number of larger, private shareholders are raking in the benefits of privatisation.

Mr. Lamont: The purpose of the personal equity plan is to increase direct ownership of shares by individuals and to reduce the proportion owned by institutions as such. If that is what the hon. Gentleman is criticising, I very much welcome his conversion to supporting the scheme. The Government very much want to see the widest possible ownership of shares. That is why we have introduced this special relief,, which will be of particular benefit to small shareholders and people on modest incomes.

Mr. Holt: Does my right hon. Friend agree that most people would like to go into share owning but at the moment are frightened by the tactics of the Labour Opposition who suggest that they will steal back British Telecom shares at a price below their market value?

Mr. Lamont: We have all noticed that the Labour party has put forward a proposal for re-nationalisation of private companies, but it does not seem to have the guts to give it its true name. We all know that it simply amounts to the confiscation of people's shares.

Mr. Donald Stewart: Does the Minister expect the scheme to have any credibility with investors, let alone new investors, when, if they wish to dispose of their shares in a falling market, they will lose the benefits of the Exchequer arrangements? How does that have any credibility?

Mr. Lamont: I am not sure what point the right hon. Gentleman is making when he refers to a falling market. Obviously if there are no profits to be made there will be no tax relief. This scheme gives small investors the opportunity to build up, over a period of time, significant profits on which there will be tax relief. The relief given on dividends is especially important to small investors.

Mr. Sumberg: Is my right hon. Friend aware that a recent stock exchange survey has shown that share ownership has doubled under this Government? One in seven adults now have a direct stake in British industry. Is this not a good base on which the Government can build?

Mr. Lamont: I believe that it is a thoroughly desirable development. There are different estimates of the proportion of the population that own shares, but it does seem to be universally agreed, even if there are different estimates of what the position is today, that it has doubled from whatever the situation was before.

Job Creation

Mr. Dixon: asked the Chancellor of the Exchequer what estimate he has made of the comparable cost per job of jobs created as a result of (a) tax cuts and (b) public spending.

Mr. Lawson: The hon. Gentleman's question is based upon a fallacy. Lasting jobs cannot be bought. What matters is the performance of the economy, and in general this is more likely to be improved by reducing the burden of taxation than by increasing Government spending.

Mr. Dixon: The right hon. Gentleman must be aware that every objective study has suggested that public expenditure is far more effective than tax cuts in creating jobs. Evidence given to the Employment Select Committee said that infrastructure investment was cheaper and quicker than tax cuts in creating jobs. This investment


would also provide much needed roads, sewers, schools, hospitals and house refurbishment. When will the right hon. Gentleman concern himself with the 4 million people who are unemployed and less about putting a couple of pennies in the pockets of those who are employed?

Mr. Lawson: I recall an opinion poll recently which showed that the overwhelming majority of Labour voters wanted a reduction in the basic rate of income tax, even though Labour Members of Parliament did not. The studies to which the hon. Gentleman referred do not look at the supply side effects of either public expenditure or the reduced burden of taxation. The supply side effects are absolutely crucial in determining the performance of the economy and, therefore, the level of employment.

Mr. Dickens: Is it not right that if we take the grasping hand of the national Government and the grasping hand of local government out of people's pockets, that will benefit individuals and their families, industry and charities, which we were talking about earlier?

Mr. Lawson: My hon. Friend characteristically puts it very well indeed.

Mr. Hoyle: Will the Chancellor and other Ministers stop sounding like a record on which the needle is stuck? Is it not true that they keep repeating the same old fallacies without there being any effect on the economy? Has the Chancellor taken account of the fact that tax relief will probably suck in imports, whereas the same money used in public spending would benefit all?

Mr. Lawson: I have to disappoint the hon. Gentleman by informing him that the facts of life and the laws of arithmetic do not change from week to week or from year to year.

Mr. Cow: If the consequence of high public expenditure is a diminution in unemployment, how is it that, under the Labour Government, when public expenditure rose massively, unemployment also doubled? Is my right hon. Friend aware that it is only by reducing the levels of taxation that we shall encourage greater activity in the economy?

Mr. Lawson: My hon. Friend is right. He was an especially close, astute and penetrating observer of the follies and misfortunes of the last Labour Government. He makes an important point. It was during the early period of the Labour Government—what one might call their red period, the pre-IMF period, when they were boosting public expenditure extravagantly — that unemployment doubled. My hon. Friend is absolutely right. There is no solution to the problem of unemployment by increasing public expenditure, whether by the £24 billion which the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) wants, or by an even larger figure.

Mr. Terry Davis: The Chancellor referred to what a majority of Labour voters want. Is he aware that a majority of all voters want a reduction in unemployment? Everybody — the National Institute for Economic and Social Research, the Henley Centre for Forecasting, the London Business School, Cambridge Econometrics, the Select Committee on Employment and the House of Commons Library, using the Treasury's economic model — agrees that sensible increases in public expenditure provide more jobs than do tax cuts. Why will the Chancellor not change his economic policy and base it on the facts instead of on his personal prejudice?

Mr. Lawson: My policies are based on facts and not on artificial calculations by computer models or any other models.

Mr. Davis: This is the right hon. Gentleman's model.

Mr. Lawson: These are models which do not capture the supply side of the economy, which is critical to the performance of the economy and, therefore, the creation of jobs. That is what matters. It is no accident, as my hon. Friend the Member for Amber Valley (Mr. Oppenheim) said earlier, that the two most successful economies in the world—Japan and the United States—have the lowest proportion of gross national product taken in taxation.

Premium Bonds

Mr. Amess: asked the Chancellor of the Exchequer how many individuals have purchased premium bonds in each of the last five years; and what was the total prize money paid out in each of those years.

Mr. Ian Stewart: The number of premium bonds purchased in 1985–86 was approximately 2¼ million, and total prize money in that year was £135 million. I will arrange for the figures for earlier years to be published in the Official Report.

Mr. Amess: Is my hon. Friend satisfied with those figures, or does he agree with those who feel that premium bonds are rather old hat, with unexciting prizes and disappointing returns for the Treasury? Does he agree with those who would like a new form of national lottery?

Mr. Stewart: I do not accept what my hon. Friend says about premium bonds being unattractive or unsuccessful. Whether they are old hat is a matter of judgment. They have been going for 30 years, during which time they have accumulated very large sums of money—the current figure is about £1·8 billion—and about 24 million of our fellow citizens hold them. That can hardly be described as an unsuccessful exercise. As to lotteries, we had a debate a few years ago, and there was little support for the idea. What I think has been suggested when that idea has been put forward is that it might have a substantial effect on other forms of betting and gaming, and one cannot necessarily expect it to be a very substantial exercise in this country.

Following are the figures:



Number of Purchases Million
Value of Prizes £ million


1981–82
3·58
101·1


1982–83
3·36
104·3


1983–84
3·44
110·2


1984–85
3·25
12·17

Privatisation

Mrs. Clwyd: asked the Chancellor of the Exchequer what are his latest projections for receipts from asset sales for 1986–87.

Mr. Lawson: I expect privatisation proceeds this year to be around £4¾ billion, in line with the projections in the public expenditure White Paper.

Mrs. Clwyd: Does the Chancellor recall that when British Telecom was sold off share prices rose by £1·3


billion on the first day after privatisation? What guarantee can he give that the same thing will not happen when he sells off British Gas, or is his first priority to provide further windfalls for his friends in the City?

Mr. Lawson: So far from those profits going to friends or otherwise in the City, they went to a wide range of ordinary shareholders. Very nearly 2 million people subscribed to the highly successful privatisation of British Telecom and got shares, and 1·5 million shareholders are now told by the Labour party that if by any mischance a Labour Government are returned they would be grabbed back at 130p a share, well below the market value. That is expropriation and confiscation, and the public should know that.

Mr. Yeo: Bearing in mind the substantial proceeds received not only in the current year but in previous years from privatisation and the large increases in the price of these investments which employees and other shareholders have enjoyed, has my right hon. Friend been able to estimate the public expenditure cost of repurchasing all these shares? Does he agree that, if such a repurchase was to take place, it would be one form of public expenditure that would create not a single additional job?

Mr. Lawson: My hon. Friend is right, but it would also plunge the companies that are now doing very much better than they have ever done before back into the dead hand of the state, which would be bad for the companies, bad for their employees and bad for the economy. One of the reasons why nearly every one of the companies has been privatised and stands at a higher price in the market than when it was first privatised is that, almost without exception, they have improved their profitability, their sales and their performance generally now that they are in the private sector. Therefore, we shall continue, undisturbed by these criticisms, with the privatisation of British Gas later this year and a number of other privatisations.

Mr. Hattersley: Having talked about the market value of British Telecom shares, will the Chancellor tell us why he chose to sell them below the market value, and will he give an absolute assurance that he will not waste public money in the same way with the flotation of British Gas?

Mr. Lawson: The right hon. Gentleman clearly knows very little about market values, because there was no market value until they were first offered to the market. They were offered to the market at a price that the most expert advisers advised was the appropriate price at which to offer them. Since then, I am glad to say, they have appreciated. What is more, I recall the Labour party and, indeed, the right hon. Gentleman, predicting confidently that the privatisation would be a flop. In fact, it was an outstanding success, and that is what he does not like.

Competitiveness

Mr. Pike: asked the Chancellor of the Exchequer what assessment he has made of the change in competitiveness of British exports owing to changes in the sterling exchange rate over the past 10 years.

Mr. Ian Stewart: Experience has shown that competitiveness is determined by many factors other than the exchange rate. The excessive growth of our unit labour costs currently poses the greatest threat to our future competitiveness.

Mr. Pike: Is it not a fact that interest rates in this country are still too high, which, in exchange rate terms, is putting the pound at an artificially high level, and this is putting our exports and manufacturing industries at a disadvantage compared with our competitors abroad? In view of the Conservative Government's seven years of abysmal failure in reducing unemployment, when will they take some action to get the output of our manufacturing industries above the 1979 figure and manufacturing exports in surplus compared with our imports?

Mr. Ian Stewart: The hon. Member may not have observed that since the Budget interest rates in the country have already fallen by 2½ per cent. I would also remark that manufacturing output and investment have been rising well in recent years.

Mr. Philip Oppenheim: Is it not true that those countries that have the best record in manufacturing output are those that have had Governments who have followed consistently pro-enterprise, pro-business, pro-profit, lower taxation policies, unlike this country, which has been intermittently burdened by Left-wing Socialist Governments?

Mr. Stewart: My hon. Friend is absolutely right. Clearly the success of the British economy in the past few years has owed a great deal to the way in which this Government have been able to liberalise the economy and take off the shackles of the state and of excessive public expenditure. There is only one way in which that progress could be put at risk, and I hope that there is no chance of that. It would be if the Government were not given the chance to have not only one but many more terms ahead, so that years and generations of damage can be put right.

Manufacturing Output

Mr. Nellist: asked the Chancellor of the Exchequer when he next intends to meet the Trades Union Congress general council to discuss manufacturing output; and if he will make a statement.

Mr. MacGregor: My right hon. Friend has no plans as such to meet the Trades Union Congress general council but, of course, he regularly meets the Trades Union Congress general secretary and other members of the general council at the National Economic Development Council.

Mr. Nellist: If the Chancellor were to meet the TUC general council, would he explain how, if this is the sixth successive year of successful economic growth, the Central Statistical Office in the past few days can admit that manufacturing production has fallen again by a further 1 per cent. over the past 12 months? Is it not the case that private ownership under the Government is manifestly incapable of providing decent living standards or full employment for the majority of the population?

Mr. MacGregor: That is pretty rich coming from the hon. Gentleman. It was those of a militant nature who think and act as he does who did more harm to large parts of British manufacturing industry, and hence jobs, in the 1970s than anything else. The hon. Gentleman clearly has not noticed that, since June 1983, manufacturing output is up 81 per cent., manufacturing investment is up 8½ per cent., manufacturing exports are up in volume terms by 22½ per cent., and manufacturing productivity is up by 3¼


per cent. What is more, the biggest threat to jobs and the competitiveness of industry is the way in which our unit labour costs are rising faster than those of many of our competitors. The hon. Gentleman's contribution to that problem, given his philosophy, would be nothing short of disastrous.

Mrs. Currie: If my right hon. Friend meets the TUC, will he ask it to take note of the recent numerous votes against strikes in manufacturing industry, such as the vote in British Rail Engineering Ltd., for which many of my constituents work? Is it not time that the TUC ruled out strikes, as they are the most negative, destructive and pointless way in which to negotiate in an industrial dispute?

Mr. MacGregor: The climate is different now, and not one that those such as the hon. Member for Coventry, South-East (Mr. Nellist) could exploit, as was done in the 1970s, with such harmful results to the British economy. My hon. Friend is right. The record on strikes is one of the most successful aspects of the British economy.

Dr. McDonald: If the British economy is so good, given the litany of statistics that the Chief Secretary has just cited, why did he say earlier that the British economy was in a precarious state due to falling oil prices?

Mr. MacGregor: I am grateful to the hon. Lady for giving me the opportunity to make clear what I said. The problem is that we now live in a precarious world where there are substantial fluctuations in economic conditions. One clear sign of the strength of the British economy is the fact that we have managed to come through a 12-monthlong coal strike and a period of fast falling oil prices. We have been able to do so because we have an increasingly strong economy and the world can see that. If the policies advocated by the hon. Lady's party were pursued, with an expenditure of £24,000 million, we would move into a precarious state.

North Sea Oil Revenue

Mr. Dubs: asked the Chancellor of the Exchequer what is his estimate of the revenue from North sea oil in 1986–87.

Mr. Norman Lamont: I refer the hon. Member to the forecast my right hon. Friend published at Budget time.

Mr. Dubs: Given the Government's commitment to a market economy, does the Minister agree that a falling oil price should almost automatically lead to falling exchange rates? Why, then, do the Government persist in keeping interest rates higher than they would otherwise be merely to keep up the exchange rate of the pound?

Mr. Lamont: As I am sure the hon. Gentleman knows, interest rates are determined not by oil prices but by the market and also by monetary conditions in the economy at the time.

Mr. Sumberg: Does my right hon. Friend agree that the real strength of the economy is shown by the fact that, with falling oil prices, we have not had a cash crisis or a sterling crisis and we have not had recourse to the International Monetary Fund, as we would have had under a Labour Government?

Mr. Lamont: My hon. Friend is right. If we had pursued the policy advocated by the Opposition of spend,

spend, spend, we would undoubtedly have had an enormous crisis at various times when the oil price has been under pressure.

Oral Answers to Questions — PRIME MINISTER

Engagements

Mr. Dubs: asked the Prime Minister if she will list her official engagements for Thursday 17 July.

The Prime Minister (Mrs. Margaret Thatcher): This morning I presided at a meeting of the Cabinet and had meetings with ministerial colleagues and others. In addition to my duties in this House I shall be having further meetings later today, including one with President Mubarak of Egypt.

Mr. Dubs: Given today's hint of an impending change in Government policy on sanctions against South Africa, does the Prime Minister agree that the only just solution for that country is the eradication of apartheid and the establishment of majority rule in a united and non-fragmented South Africa, a statement to which she signed her name at the Commonwealth Heads of Governments conference in New Delhi in 1983?

The Prime Minister: Both the Nassau accord and the European Council meeting at The Hague envisaged discussion on further measures that might be needed. As I said in the House on 1 July, contingency arrangements are being made. With regard to the latter part of the question, if the hon. Gentleman reads the Commonwealth accord at Nassau he will find this sentence about getting rid of apartheid:
We believe that we must do all we can to assist that process,"—
this is the critical part—
while recognising that the forms of political settlement in South Africa are for the people of that country—all the people—to determine.

Mr. Whitfield: Does my right hon. Friend agree that the insistence of Mr. Colin Sampson, the chief constable of West Yorkshire, on the suspension of Mr. John Stalker as the deputy chief constable of Manchester pending the outcome of his inquiries into the activities of Mr. Stalker in Manchester, and his insistence on the suspension of two senior police officers in Northern Ireland pending the outcome of the inquiries into certain activities of the Royal Ulster Constabulary, demonstrate that Mr. Sampson is carrying out a proper and robust inquiry into both matters? Further, does my right hon. Friend agree that suggestions in the media to the contrary are at best mischievous and at worst the result of an orchestrated campaign by those who have the worst to fear from the outcome of those two most important inquiries?

The Prime Minister: As my hon. Friend is aware, police matters in Northern Ireland are for the Chief Constable of the RUC and matters concerning Mr. Stalker are for the police complaints procedure. It would be totally wrong of me to comment on either while the procedures are in process.

Dr. Owen: On the contingency measures that the Prime Minister has just announced, which could well be the important signal that the Commonwealth needs to rescue the Commonwealth Games, will the Prime Minister make


it clear that those measures are neither "immoral" nor "repugnant", and will she withdraw those very offensive remarks?

The Prime Minister: I have answered faithfully accusations made against me and about various things concerned with sanctions. Like every hon. Member, I wish to see apartheid ended at the earliest opportunity. I believe passionately that it will best be ended by negotiations. We are doing everything we can to bring those negotiations about, as the right hon. Gentleman knows. The further contingency measures were in the communique of the EEC. Those are not automatic. They never were automatic. They are there to be considered. I have described them as contingency measures, but they are not automatic.

Mr. Harris: Has my right hon. Friend considered what some of us regard as the disgraceful decision of this House last night in voting for a large increase of over £7,000 for secretarial allowances? If the decision is irreversible, can my right hon. Friend think of any other section of public expenditure that has increased by over 50 per cent. this year?

The Prime Minister: As my hon. Friend knows, the level of the allowance is a matter for the House, which voted last night for a 52 per cent. increase in the office, secretarial and research allowance. The decision was taken against the advice of my right hon. Friend the Leader of the House, who argued that it was wholly inappropriate to vote for such a substantial increase at the very moment when the level and structure of the secretarial allowance had been referred to the Top Salaries Review Body for general review. No doubt last night's decision will be taken into account in that review. I remind the House that the cost of Parliament, which is determined by Parliament and not by the Government, has risen from £26 million in 1978–79 to £72 million last year. The increase to which my hon. Friend has referred must be found out of the pockets of our constituents.

Mr. Winnick: asked the Prime Minister if she will list her official engagements for Thursday 17 July.

The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.

Mr. Winnick: Would the Prime Minister like to comment in any way on the numerous press articles which have appeared in the past few days regarding the position of the Head of the Commonwealth and the future of that organisation? Does the right hon. Lady not agree that the Commonwealth faces its most severe crisis, largely because of her attitude? Only a few days ago she suggested that South Africa should not have been excluded from the Commonwealth in 1961. Does the right hon. Lady not realise how deeply offensive and grotesque those remarks were, coming from a British Prime Minister?

The Prime Minister: We try to influence the policies of nations with which we disagree. We seem to have taken a different view of South Africa — [Interruption.] —although we do wish to try to influence its policies to end apartheid. [Interruption.]

Mr. Speaker: Order. We often condemn lack of free speech elsewhere. We must not deny it to the Prime Minister.

The Prime Minister: I propose to follow the well-established practice of my predecessors and not answer questions on the Floor of the House, directly or indirectly, about the monarch.

Mr. Best: asked the Prime Minister if she will list her official engagements for Thursday 17 July.

The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.

Mr. Best: Does my right hon. Friend accept that there are many black leaders in South Africa who have different and constructive views as to what should be the change after the dismantling of apartheid? Will she take those different views into account when formulating her own policy, so that we can move the debate on to the more fruitful ground of discussion of the substance of change rather than merely any change for change's sake, without having firm ideas about its actual nature, which so often appears to be the refuge of Opposition Members?

The Prime Minister: As my hon. Friend knows, the African National Congress has made its views well known. A representative of the ANC met my hon. Friend the Minister of State, Foreign Office, the hon. Member for Wallasey (Mrs. Chalker), some time ago, and we know its views. We also know, and read only this morning in the newspapers, of the testimony of Chief Buthelezi, in which he said that the imposition of negative, punitive measures against Pretoria can only impair the process by which black and white are finding common cause with each other to an ever-increasing extent. Our objective is the same. It is the end of apartheid. We wish to do everything that we can to bring it to an end by negotiations, and, ultimately, that will be the way that change will come about.

Mr. Kinnock: Record unemployment figures have again been published today, amounting to three and a quarter million. For the first time since March 1983 the numbers employed have gone down. In her current review of public expenditure for next year, what will the Prime Minister do to try to ensure that the jobs that desperately need to be done can be commissioned and paid for: jobs, for instance, in the building industry, where private building is now stagnant and council house building is 70 per cent. —90,000 houses—lower than it was when she took office in 1979?

The Prime Minister: I believe — although I do not have the press release with me — that the numbers in employment have gone up, although the right hon. Gentleman is right in saying that the unemployment figures are deeply disappointing and that the seasonally adjusted unemployment figure has gone up by 15,000, so that it has risen to 3·2 million. As the right hon. Gentleman is aware, we have done a very great deal for the unemployed. [Interruption.] This is not a matter which affects only the United Kingdom. It affects the whole of the Western world. In the last five years we have spent over £8·5 billion on employment measures and the youth training scheme. The YTS has taken more than 1 million trainees and it has now expanded to a two-year scheme. On housing, as the right hon. Gentleman is aware, 1·3 million new homes have been built in Great Britain since 1979. If we take more money out of business and away from the taxpayer, what we have to take into account are the jobs that are lost and the investment that is lost by the


money we take away and the return that that would give, compared with any that it would give if it were put into the public sector.

Mr. Kinnock: Is not the critical fact that at the same time as the Prime Minister has been cutting public expenditure and losing jobs in the construction industry, 1·7 million manufacturing jobs have also gone? So the equation does not work at all. Is it not the case that there are more people in long-term unemployment than there were in total unemployment when the Prime Minister took over? Will she tell us what has happened to the 2 million full-time jobs that have been lost since she became Prime Minister? Why does she not stop dodging and start building?

The Prime Minister: We have tackled some of the problems from which the right hon. Gentleman's Government ran away. If the right hon. Gentleman is suggesting that we should put back into manufacturing industry all the overmanning that was taken away, he will ruin the whole lot of industry.

Mr. Michael Brown: asked the Prime Minister if she will list her official engagements for Thursday 17 July 1986.

The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.

Mr. Brown: Turning to the future of education, does my right hon. Friend agree that what we have to do in the coming months is to offer the prospect of choice within the state system of education to parents, and that this can best be done by ensuring that state funds for the state education system are based upon cash following the pupil? Is my right hon. Friend aware that on Thursday 24 July a group of her colleagues on this side of the House, who have produced a pamphlet called "No Turning Back", will be producing a pamphlet to he published by the Conservative Political Centre entitled, "Save our Schools"? Will she undertake to set that pamphlet as homework for the Secretary of State for Education and Science?

The Prime Minister: Yes, my hon. Friend is right. It is our purpose to give more choice to parents whose children go through the state system, which is 95 per cent. of our children. We wish to give to those parents more choice of schools, particularly as some children in some city centres have to resist political indoctrination and do not get the teaching that they deserve. My hon. Friend has illustrated one way in which it will be possible to do that. I shall certainly add the pamphlet to my own homework and that of the Secretary of State for Education and Science.

Mr. Ernie Ross: asked the Prime Minister if she will list her official engagements for Thursday 17 July.

The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.

Mr. Ross: Will the Prime Minister take time today to send a clear statement to the Heads of Government of the front-line states, who will meet tomorrow in Harare, that she is absolutely totally committed to the statement issued by the recent EEC summit, in order not only to preserve and save the Commonwealth, but to save the Commonwealth Games?

The Prime Minister: The Commonwealth Games are a matter for the Commonwealth Federation. They are not a matter for me. We have faithfully carried out the Commonwealth accord and we shall also faithfully carry out the EEC statement. It is important, as we have made clear all along, that any action which is taken should be considered not only by the Commonwealth and the EEC but by all the Western industrialised countries. The hon. Gentleman will be aware that my right hon. and learned Friend the Foreign Secretary left to discuss matters further in Washington today.

Mr. Batiste: asked the Prime Minister if she will list her official engagements for Thursday 17 July.

The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.

Mr. Batiste: Has my right hon. Friend had the opportunity of looking at the pamphlets about the miners' strike and the Falklands war which I sent to her office recently? Is she aware that those pamphlets, circulating in schools in my constituency and elsewhere in Yorkshire, were collected by concerned trade unionists, who were appalled at the level of political propaganda that they represented? Does she share their concern, and what is to be done about the offensive remarks made about her and about the British interest? What will she do about the continuing attack upon freedom of education in our country by the Left?

The Prime Minister: I and a number of my colleagues saw those two pamphlets, which were utterly disgraceful. They were nothing to do with education and I am amazed that they properly came within anyone's education budget. My hon. Friend will be aware that the other place has been trying to do something to exclude political indoctrination from schools. The matter will shortly come before the House and we shall express our view upon that clause, I hope forcefully, and keep it in the Bill.

Mr. Jim Spicer: On a point of order, Mr. Speaker.

Mr. Speaker: Does it arise directly out of these questions?

Mr. Spicer: Yes. You may recollect, Mr. Speaker, that on Tuesday I attempted—

Mr. Speaker: Today or Tuesday?

Mr. Spicer: Tuesday.

Mr. Speaker: I shall take it later.

Business of the House

Mr. Neil Kinnock: May I ask the Leader of the House whether he will state the business for next week?

The Lord Privy Seal and Leader of the House of Commons (Mr. John Biffen): Yes, Sir.
The business for next week will be as follows:
MONDAY 2I JULY—Opposition Day (15th Allotted Day, 2nd Part). Until seven o'clock there will be a debate on an opposition motion entitled "The Fight Against Crime—Putting People First". Consideration of any Lords amendments which may be received to the Gas Bill.
Remaining stages of the Rate Support Grants Bill.
Proceedings on the Insolvency Bill [Lords] and the Company Directors Disqualification Bill [Lords] which are both consolidation measures and were previously announced for Friday 18 July.
TUESDAY 22 JULY—Remaining stages of the Education Bill [Lords].
WEDNESDAY 23 JULY — Consideration of any Lords amendments which may be received to the Social Security Bill, the Wages Bill and the Agriculture Bill.
THURSDAY 24 JULY— Proceedings on the Consolidated Fund (Appropriation) Bill.
Motion for the summer Adjournment.
Consideration of any Lords amendments which may be received to the Building Societies Bill.
FRIDAY 25 JULY — Debates on the motion for the Adjournment.
The House may also be asked to consider any other Lords amendments and messages which may be received.
The House will wish to know, Mr. Speaker, that subject to the progress of business it will be proposed that the House should rise for the summer adjournment on Friday 25 July until Tuesday 21 October.

Mr. Kinnock: I am grateful to the right hon. Gentleman.
Why is the Gas Bill being taken on Monday when the Bill, as amended by the Lords, will not be available until tomorrow at the earliest? They are important amendments and an inadequate opportunity is being given to the House to attend to those amendments before the Bill is debated.
Why have the Government not yet published the supplementary benefit single payments orders? That new legislation, as the right hon. Gentleman knows, will deny funds to the very poorest families who need help with buying essential household items. Is the delay due to the fact that the Government's own Social Security Advisory Committee has strongly criticised the Bill, or are the Government simply embarrassed about the idea of introducing such legislation when it will serve only to add further misery to the very poor?
Last week, I said that a few hours' debate on the Social Security Bill on royal wedding day would not do justice to the millions of poor and elderly people whom the Bill affects. The Leader of the House gave me a homily about the royal wedding day being an ordinary working day. Although that is obviously true, is it not also true that on that day the press will be completely preoccupied with the nuptials, and that that is why the Government have chosen to introduce this miserable legislation then? It is a dirty trick that is quite unworthy of the Leader of the House. I must ask him, even now, to consider moving that debate to another day.
May I ask the Leader of the House again to guarantee that there will be a full statement on the future of the Leyland Bus and Truck Division before the House rises for the summer? The matter is under serious consideration, and it is obviously necessary for the workers and for their representatives of all parties in the House to have before the recess a clear idea of the Government's view.
The Defence Committee's report on the Westland affair is due to be published at 11 am next Thursday. Reports so far indicate that the Committee has come to conclusions that are highly critical of the duplicity and dubious conduct of the Government and of some of their servants. Will the right hon. Gentleman give an absolute assurance that we shall have a chance to debate that report in the current Session?
In relation to this week's business, do the Government intend to proceed with the debate tomorrow on the Dockyard Services Bill, or is it further evidence of the Government's shambles that they are going to drop the Bill?

Mr. Biffen: I shall respond to those six points in the order in which they were presented. I take note of what the right hon. Gentleman has said about the consideration of Lords amendments to the Gas Bill. I recognise that there is a constriction on time, but I am sure that he also realises that if the House is to rise by next Friday—I felt that there was general approval of that proposition—there are clearly difficulties in spacing the programme in an ideal way.
I have not announced a debate on the single payments orders next week. If it is decided to proceed, an announcement will be made in due course.
Of course, the date chosen for debating the Social Security Bill could give rise to difficulties for the right hon. Gentleman, and I quite understand that he would prefer it not to be discussed then. But I assure him that the last consideration was the impact that that might have on press coverage of it. However, if he would like to have the matter considered through the usual channels, he knows that I am always courteous, if not always accommodating.
The right hon. Gentleman asked for a statement on the Leyland Bus and Truck Division. I note his request, and I shall consult my right hon. Friend the Secretary of State for Trade and Industry. The right hon. Gentleman will understand that the publication of the Select Committee's report on Westland helicopters is the responsibility of that Committee. I note that he would like a debate on that report in the current Session. That is a reasonable request, but perhaps we can look at it through the usual channels.
Following discussions, it has been decided not to proceed with the Dockyard Services Bill tomorrow, contrary to the previous announcement, but to consider Lords amendments at another time, probably during the course of next week. That indicates not a shambles but reasonable flexibility.

Sir Dudley Smith: The Peacock report poses important questions on public service broadcasting which need to be answered. Will there be a debate on that report in the spill-over period when we return after the recess rather than leaving it to the vagaries of the new Session?

Mr. Biffen: My hon. Friend raises a question which was put to me last week. This shows the continuing interest in having reasonably soon a debate on the Peacock report.


I would not wish to commit myself irrevocably to saying that such a debate will be held in the spill-over period, but I shall bear in mind my hon. Friend's preference.

Dr. David Owen: Even allowing for the disarray in the Government's programme, surely the right hon. Gentleman's statement is without precedent. He has effectively changed the business of the House without making a business statement. It is all very well for the right hon. Gentleman, in answering the Leader of the Opposition, to say that the House is no longer proceeding tomorrow with the Dockyards Services Bill, but why did he not make that clear in his initial statement? I shall pursue this matter at a further date, Mr. Speaker, unless the Leader of the House will explain why he acted in this extraordinary manner.

Mr. Biffen: There is nothing unusual, extraordinary or offensive about making the point in the way I did. I realise that the right hon. Gentleman has a constituency interest in this matter. I should be happy to keep him fully involved on the timing of the consideration of the Lords amendments.

Sir Fergus Montgomery: Did I hear my right hon. Friend aright. I believe that he said that on Thursday we shall first debate the Consolidated Fund (Appropriation) Bill and then debate the motion for the summer Adjournment. When shall we start debating the motion for the Adjournment for the summer recess?

Mr. Biffen: The proceedings on the Consolidated Fund are purely formal. The motion for the summer Adjournment will then be debated. The timing will depend on what time is given to statements, private notice questions, or whatever. On any reasonable basis, my hon. Friend may expect the debate on the Adjournment for the summer recess to start no later than 5 pm. At the conclusion of the three-hour debate on the summer Adjournment motion, the House will consider Lords amendments to the Building Societies Bill.

Mr. D. N. Campbell-Savours: Has the Leader of the House seen my early-day motion on compensation for Mr. Jim Smith of Aish and Company, the whistle blower?
[That this House positively supports paragraphs 36, 37, 38, 39 and 40 of the Twenty-third Report of the Public Accounts Committee entitled Production Costs of Defence Equipment, on the subject of Post Costing of Contracts with Aish and Company; supports in particular paragraphs (x) and (xi) in the Report's recommendations which state:
(x) We note that MoD officials responsible for contracts with Aish and Company did not begin to appreciate the possible extent of excess profits until the meeting with the company in March 1982. We conclude that the information provided to MoD by the two firmer employees probably did have a material effect on the MoD's post costing activities at this firm (paragraph 39).
(xi) We note that Treasury and MoD do not rule out the possibility of compensation to individuals who have helped MoD to identify possible excess profits but that the value and propriety of any compensation proposals would need to be considered very carefully (paragraph 40 )';
and believes that compensation should be paid for loss of income and professional opportunity arising from whistleblowing in the case of Aish and Company.'.]
The motion was signed by 231 hon. Members within two days and I confidently expect 300 signatories by next week.

Will the right hon. Gentleman raise the issue with his colleagues in Cabinet and impress upon them the fact that the House of Commons has spoken on this matter?

Mr. Biffen: The hon. Gentleman is a greatly experienced parliamentarian and constitutionalist. He knows perfectly well that it would be improper for me to reveal what I may or may not say in Cabinet. I assure him that I have taken account of his early-day motion. This is within the purview of the Public Accounts Committee. The Treasury's comments on that will be made in due course. I hope that the matter can be further considered within that framework.

Mr. Michael Latham: Following my right hon. Friend's generally sympathetic response to me last week, has he come any nearer to persuading my right hon. Friend the Secretary of State for Trade and Industry to make a statement to the House next week on what he will do to keep out Greek cement imports, which are a threat to our cement industry?

Mr. Biffen: At this time of the year, sympathy is about the only commodity I have left. I understand and admire the way in which my hon. Friend pursues this problem which affects his constituency. I shall be in touch with my right hon. Friend the Secretary of State for Trade and Industry, but I would not wish to hold out an easy promise of a statement next week.

Mr. Peter Shore: Last night, after a debate and two votes, a clear decision was made by the House on the motions dealing with Members' secretarial allowance. Despite the rather odd remarks by the hon. Member for St. Ives (Mr. Harris) and the Prime Minister, will the Leader of the House take this opportunity to confirm the Government's acceptance of the will and decision of the House? Will he confirm that Government authority has been given, or will soon be given, to the Accountant to make the necessary payments?

Mr. Biffen: I am grateful to the right hon. Gentleman for raising this matter. I am sure that he will confirm that it is totally without collusion. Last night I said that I thought it unwise of the House to act in the way that it did —on reflection, I think that that was a masterpiece of understatement. However, the decision of the House, having been clearly indicated, will be put into effect.

Mr. James Hill: My right hon. Friend may have read the debate on the Felixstowe Dock and Railway Bill which lasted almost two days. Many anomalies were quoted by hon. Members from both sides of the House. The main problem was that there was an understanding that the Government do not have a ports policy. That lie should be put to rest by the Government using half a day to discuss a ports policy for the United Kingdom and stopping the investment of capital in various ports, where there is no hope of getting any further trade.

Mr. Biffen: I take the point made by my hon. Friend. With his constituency interest, he addresses himself to it with authority. I will pass fits comment on to my right hon. Friend the Secretary of State for Transport. I am sure that my hon. Friend will appreciate that we cannot seriously consider the prospect of a debate before the spill-over at the earliest.

Mr. Michael Foot: As the right hon. Gentleman is apparently showing considerable skill in


shedding various embarrassing pieces of Government legislation next week, and getting the House away at a reasonably early date, may we have an absolute guarantee that, if at the Commonwealth conference there is the danger of a crisis in which any member of the Commonwealth wishes to leave the Commonwealth, the House of Commons will be recalled at once?

Mr. Biffen: I will not speculate as to the spirit in which the House would return given the circumstances outlined by the right hon. Gentleman. He knows perfectly well that Standing Order No. 143 prescribes the circumstances for the recall of Parliament, and that is what would be observed.

Mr. Ivor Stanbrook: Has the attention of my right hon. Friend been drawn to early-day motion 254 which relates to a group of public service pensioners who are not allowed to count their war service to the credit of their pension because the public service was carried out abroad?
[That this House believes that overseas Civil Service pensioners should be allowed to count war service towards their pension entitlement in the same way as every other branch of the public service; and calls upon Her Majesty's Government to do justice towards a small number of mostly elderly people whose working lives were spent abroad in the service of the Crown.]
Will he arrange for a Minister to make a statement on that matter next week and thus remedy an injustice done to a small group of mostly elderly persons whose working lives were spent abroad, often in adverse conditions, in the service of this nation?

Mr. Biffen: I am aware of the point that my hon. Friend makes because I suspect that I heard it from his own lips a few weeks ago. I shall look into the matter and will be in touch.

Mr. Archy Kirkwood: Reverting to the subject raised by the Leader of the Opposition relating to social security regulations dealing with single payments, will the Leader of the House confirm that last week the Prime Minister guaranteed a debate on that subject before the summer recess? Will he confirm that, since these regulations are subject to negative procedure, it would be unacceptable to have them laid on that table and then implemented during the summer recess and not to have the debate on the attendant Social Security Advisory Committee report until the autumn? Does he not think that that would be totally unreasonable?

Mr. Biffen: I have before me the exchanges between the hon. Gentleman and my right hon. Friend the Prime Minister. I took account of them in the remarks I made to the Leader of the Opposition.

Mr. Nicholas Winterton: May I prefix my question to the Leader of the House by congratulating you, Mr. Speaker, the Leader of the House and my hon. Friend the Member for Lewisham, East (Mr. Moynihan) on the outstanding success of your regatta? It was quite magnificent. Although the team for which I rowed was robbed because of a decision of the Leader of the House, although I got my own back later yesterday evening, may I say that it was magnificent occasion which I hope will be repeated?
Will my right hon. Friend find time for a debate on the multi-fibre arrangement? The European mandate on the multi-fibre arrangement, which could effect the jobs of 500,000 people in this country and many major industries in important regions of this country, is to be decided by the end of this month. Will he try to find time next week, which will be very busy, so that the people who represent textile and clothing areas can ensure that the Government are aware of the views of those who elected them and of the industries which are important to their constituencies?

Mr. Biffen: On this occasion, my hon. Friend has once again established himself as an aquatic optimist. If my facilities as a starter are somewhat suspect, I understand that they were surpassed in that respect by the Archbishop of Canterbury.
Looking at the programme for next week and the Government business that it contains, I cannot easily promise my hon. Friend that which he seeks, but I suggest that he tries his luck in the debate on Friday 25 July.

Mr. Robert Parry: Further to yesterday's private notice question, will the Secretary of State for Northern Ireland give an assurance to the House that during the long summer recess Catholic areas will be protected by the security forces from those bigoted, cowardly Orange thugs?

Mr. Biffen: I appreciate the hon. Gentleman's interest in the affairs of the Province. He will understand that yesterday's private notice question enabled the House to consider the more immediate difficulties. I shall pass on his comments to my right hon. Friend the Secretary of State for Northern Ireland.

Mr. Toby Jessel: Will my right hon. Friend please say when he can find time for us to debate the excellent early-day motion 1134, in the name of my right hon. and learned Friend the Member for Hexham (Mr. Rippon), four other hon. Members and myself?
[That this House urges Her Majesty's Government to divert aid presently intended for Ghana, Kenya, Nigeria, Tanzania and Uganda to the provision of education and other assistance for the black population of South Africa.]

Mr. Biffen: I am sure that the aid programme is under continuous review by the Foreign Office. I suggest that my hon. Friend might also like to try to secure a debate on 25 July when he can make his points further; otherwise he might consider the motion for the summer Adjournment itself.

Mr. John Home Robertson:: I understand that there may be some congestion on the streets of Westminster on Wednesday. May I draw the attention of the Leader of the House to the fact that the House resolved on 6 November
That the Commissioner of Police of the Metropolis do take care that during the Session of Parliament the passages through the streets leading to the House be kept free and open and that no obstruction be permitted to hinder the passage of Members to and from this House". — [Official Report, 6 November 1985; Vol. 86, c. 2.]
Will the Leader of the House remind the Commissioner of Police of the Metropolis of that fact in view of the important business that the right hon. Gentleman says we have to transact on that day?

Mr. Biffen: The hon. Gentleman views the monarchy with all the enthusiasm of John Knox. I shall consider the point he has made.

Mr. David Sumberg: May I welcome my right hon. Friend's statement about tomorrow's business, because we can all get back to our constituencies much earlier? However, can he guide me as to what we shall be debating in the light of the fact that the Dockyard Services Bill has gone, and the two consolidation measures have gone? What will be discussed? Is he open to any suggestions?

Mr. Biffen: As it is a festive time of the year, it is a surprise day.

Mr. Max Madden: Will the Leader of the House ask the Home Secretary to conduct an urgent inquiry into the conditions at Heathrow to which many visitors to this country are subjected? Does the right hon. Gentleman realise that scores of visitors every week, who are required to have interviews with immigration officers, are compelled to stay, often for more than 24 hours, in cramped facilities without the opportunity of sleeping or eating, and that recently the number included a 14-yearold boy? Does the right hon. Gentleman understand that immigration officers, who are grotesquely understaffed, are extremely concerned at the indignities and discomfort to which many visitors are put by those outrageous arrangements? Will he ask the Home Secretary to conduct an urgent inquiry to ensure that those indignities and inconveniencies are removed as quickly as possible?

Mr. Biffen: I could not accept the hon. Gentleman's remarks as a premise to any action that I would undertake. However, I appreciate that the matter is causing great concern, and I shall refer it to my right hon. Friend the Home Secretary.

Mr. Peter Bruinvels: Does my right hon. Friend share my concern at the high divorce rate, the falling standards in family life and the lack of morals? Does he not agree that religious education is failing in many of our schools and that the allegations and leaks coming out of one of our committees on education that morning assembly may he done away with would be the thin end of the wedge? Will my right hon. Friend find time either next week or when we return after the recess to debate the important need for all children in Leicester and elsewhere to benefit from the collective act of worship and to learn the good and human decency of a Christian denomination?

Mr. Biffen: My hon. Friend outlines a view which will be widely shared in the House and in Leicester. I understand that his specific point relates to the findings of a departmental Select Committee. Perhaps we should wait for its report to be published.

Mr. Dennis Skinner: Will the Leader of the House make a few inquiries about the attitude of some Departments and Ministers who are not replying to Labour Members' letters? Does he know, for instance, that I wrote on 21 May to the Home Secretary about the plight of Terry French, a miner put in gaol for five years for doing little or nothing during the strike? He is likely to remain there until 1987 unless parole is allowed. The Home Secretary has not even had the decency to reply to my request of 21 May for parole for Terry French to be reviewed. I wrote to the Home Secretary again on 12 June, but I did not get very far. I have written again.
It is time that the Government had the decency to deal with these matters. I know that the Home Secretary is

supposed to be a novelist, but I do not expect a novel in reply. I expect a simple answer. Will the Leader of the House do something about it?

Mr. Biffen: The hon. Gentleman never writes to me.

Mr. Skinner: The right hon. Gentleman is wrong. I wrote 25 days ago.

Mr. Biffen: I must be a good correspondent. I will look into the matter and bring the hon. Gentleman's point to the attention of my right hon. Friend the Home Secretary.

Mr. Patrick Thompson: Bearing in mind the result of the vote taken last night about support for Members of Parliament and the brevity of that debate, will my right hon. Friend consider allowing an early debate, possibly in October, on the role of the Member of Parliament, the role of Parliament and the balance of power between Parliament and the Executive? That is the issue to which we should have addressed ourselves in yesterday's debate.

Mr. Biffen: My hon. Friend has made an extremely valid point about the need for a wide-ranging assessment of the effectiveness and the role of the hon. Member and this House, and the extent to which public funds are used to support that function. Initially, that issue might be appropriate for a private Member's day.

Several Hon. Members: rose—

Mr. Speaker: Order. I am always reluctant to curtail business questions. I will call those hon. Members who have been standing. However, I ask for brief questions as we have a heavy day's business today.

Mr. Tam Dalyell: Is the Leader of the House aware that many of us have spent many hours on the Salmon Bill and that many constructive suggestions were put forward, not least by the hon. Member for Wealden (Sir G. Johnson Smith) and others? In the meantime, during the summer, will he prevail upon his ministerial colleagues to take account of the real changes that we have urged? There is no chance of the Bill being dropped, is there?

Mr. Biffen: I will bear the hon. Gentleman's point in mind and will bring it to the notice of my ministerial colleagues.

Dr. Norman A. Godman: Does the Leader of the House agree that the time has come for the House to debate the present circumstances and the future of the British fishing industry in the light of the proposed structural changes in Europe?

Mr. Biffen: That is certainly one of the many potential subjects for debate which compete for a rapidly diminishing amount of parliamentary time. However, I will bear it in mind.

Mr. Dave Nellist: Has the Leader of the House considered that next Wednesday's business is an exercise in hypocrisy and clearly shows the divided nature of Britain under the Tory Government? Viscount Althorp, the brother of Princess Di, will receive a reported £10,000 for a few hours of television commentary, while the Government will say that more than 500,000 young workers, all within a year or two of his age, earning £40 to £50 are pricing themselves out of work, and that the single needs payments for the 4 million


elderly and unemployed people on supplementary benefit are to be removed. Does the right hon. Gentleman agree that Wednesday will be the most shameful day in my three years as a Member of this House under his tutelage as Leader of the House?

Mr. Biffen: I am flattered that all that happened under my tutelage. I thought that I had a rather more passive role —at least, that is what I thought last night. I take note of what the hon. Gentleman says, but his anger should be directed more to television companies than to hon. Members.

Mr. Robert N. Wareing: May I echo the appeal of my right hon. Friend the Member for Islwyn (Mr. Kinnock) about the choice of Wednesday for the consideration of the Social Security Bill? Given the congestion in central London that day, what facilities will be provided to the many disabled people who will wish to use the dial-a-ride service to get to the House to lobby their Member of Parliament? Is it not wholly immoral and obscene to consider a Bill intended to hammer the poor on the day of the much publicised wedding of a rich man?

Mr. Biffen: No; I do not accept that analysis. The Bill stands to be considered and it is a major Bill in its own right. These remarks about the royal wedding are extraneous and invidious.

Mr. Roland Boyes: Has the Leader of the House had an opportunity today to read the article in the Financial Times by Richard Evans entitled
Higher charges buoy up water profits"?
He shows the massive profits made by water companies. The Northumbrian water authority increased its profits seven times and Thames water authority, on an increased turnover of £46 million, has made profits of £45 million. That has caused the chairman of Thames Water, Mr. Roy Watts, to say:
the Treasury takes too much.
Does that not demonstrate that the water authorities are being used as covert tax collectors for the Treasury, which forces them to make unacceptable, unwanted and unnecessary price increases?

Mr. Biffen: I am intrigued that articles in the Financial Times have now become source material for the Labour party. I cannot comment on their accuracy or otherwise, but the Secretary of State for the Environment will be top for questions on 23 July and I suggest that the hon. Gentleman takes up the matter with him then.

Mr. Tom Clarke: Did the Leader of the House take the opportunity today to read the joint report issued by the Office of Health Economics and MENCAP which shows a clear correlation between poverty and instances of mental handicap? Will he use his influence to ensure that legislation passed by the House in this Session is implemented with the greatest possible speed?

Mr. Biffen: I have not seen the report, but I shall make it my business to be acquainted with it. The hon. Gentleman will know the circumstances in which legislation receives the Royal Assent. So far as its being brought into effect is concerned, I can add nothing to that.

Mr. Greville Janner: Is there any prospect of a debate on the grave and growing shortage

of hospital beds which has led to complaints from my constituents both about the danger of dying because they are in need of heart surgery which they cannot get, and about remaining in constant pain because they cannot get surgery for hip replacements and other painful illness? The relatives of two people died because they were not admitted to hospital in time. Is there any hope of a debate about the need for more resources for the National Health Service? Can it please not be delayed until we return in the autumn, because too many people will be dead by then as a result of these shortages?

Mr. Biffen: As the hon. and learned Gentleman says that there is an imperative about the timing of such a debate, the best I can do is to draw his attention to the opportunities available to him on both 24 and 25 July.

Mr. Alfred Dubs: Is the Leader of the House aware that, despite the recent optimistic noises about a comprehensive test ban treaty, the United States Government intend tomorrow morning, at 4 o'clock our time, to carry out a nuclear test in the Nevada desert? In those circumstances, should there not be a debate about a possible comprehensive test ban treaty before we rise for the summer recess?

Mr. Biffen: I doubt whether a debate would do much about the putting into effect of the intended American test, so I suggest that we might consider the debate at a more leisurely time.

Mr. Tony Banks: Is the Leader of the House aware that it is more than seven months since Rupert Murdoch engineered a strike at News International, and that that dispute has cost London ratepayers about £1·5 million for the extra policing? Is he aware of the serious disruption it has caused to people living in the east end? Is he further aware that Rupert Murdoch is entirely responsible for that dispute, and that it is about time we had a proper opportunity in the House to discuss the dispute—or does he not care about it?

Mr. Biffen: I am aware that seven months of aggressive intimidation have failed, and I am aware of the despair that that causes to the far Left.

Mr. Charles Kennedy: Is the Leader of the House aware of the abuse which the Scottish Office perpetrated on the Scottish Grand Committee by using the occasion of a debate on Scottish industry to make a statement which should have been delivered from the Dispatch Box this afternoon, given that the implications of the issue extend north and south of the border? There were strong feelings in the Committee that it was a disgraceful performance by the Government—[Laughter.] The Secretary of State for Scotland need not laugh, because he was not even present. Will the Leader of the House investigate the matter and find out whether an apology would be in order?

Mr. Biffen: I have always comforted myself by believing that the proceedings of the Scottish Grand Committee were no responsibility of mine. But, in the spirit of good natured concern for the kingdom of the north, I shall look into that matter.

Mr. Willie W. Hamilton: Obviously, I am being victimised for not wearing a tie.
Does not the Leader of the House agree that it is in particularly bad taste to debate the clobbering of the poor


on Wednesday at the very time when there is to be the most vulgar display of wealth and extravagance, largely at public expense, within a mile of this building? Does that not show that the Government's policies are completely successful in dividing the nation?

Mr. Biffen: Vulgarity exists in the eye of the beholder.

Mr. Jeremy Corbyn: When the Leader of the House speaks to the Home Secretary about the plight of Terry French who is unjustly being held in Maidstone prison as a result of the miners' strike, will he remind the Home Secretary that many hon. Members and I have already written to him about that case and are still waiting for a response?
Will the Leader of the House find time before Thursday 24 July to allow the House to debate the future of the school meals service in Buckinghamshire where the Conservative-controlled county council is proposing to abolish that service, thus preventing children from getting a decent lunch, forcing their parents to spend more money on feeding them and forcing school meal workers on the dole, the day after the most disgusting display of conspicuous wealth that the country has seen in a decade?

Mr. Biffen: The hon. Gentleman used the word "unjustly", and in so doing he prejudges one's view of the processes of law. I cannot accept that, and I do not think that he enhances his case by making those observations. If the hon. Gentleman genuinely wishes to raise on the Floor of the House the matter of the affairs in Buckinghamshire, he will have the opportunity to do so on 24 and 25 July.

Leader of the Opposition

Mr. Jim Spicer: On a point of order, Mr. Speaker. You may remember that immediately after Prime Minister's questions on Tuesday I attempted to raise a point of order which related directly to the conduct of the right hon. Member for Islwyn (Mr. Kinnock)? At one point during an exchange with my right hon. Friend the Prime Minister when Chief Minister Buthelezi was mentioned, the right hon. Gentleman gave a Fascist salute from a sedentary position, implying that Chief Minister Buthelezi was a Fascist. When he was questioned about Inkatha, again from a sedentary position he said that this, too, was a Fascist party. I wonder whether you could give him an opportunity to withdraw what is an obvious slur on a man who is respected throughout the world.

Mr. Speaker: Order. I did not hear those remarks. I must say to the House again that my microphones are tuned to whoever happens to be speaking. I do not hear a lot of what goes on in the Chamber; perhaps that is just as well. Nor did I see any salutes of that nature.

Mr. Nicholas Winterton: Further to that point of order, Mr. Speaker. With respect to the views that you have just expressed, I can assure you that the Leader of the Opposition did give a Fascist salute from a sedentary position on Tuesday. It occurred during questions to the Prime Minister which are dealt with in column 849 of Hansard—

Mr. Speaker: Order. As it is not recorded in Hansard, how would anybody know? I must say to both hon. Gentlemen that this is old hat—[Interruption.] Order. This should have been raised on Tuesday.

Mr. Winterton: It was indeed raised on Tuesday by my hon. Friend the Member for Worcestershire, South (Mr. Spicer)—

Mr. Speaker: Order. No, it was not raised on Tuesday. I said to the hon. Member for Worcestershire, South (Mr. Spicer) that I would take his point of order at the usual time but he was not in the Chamber at the appropriate moment to raise it—

Mr. Winterton: He was.

Mr. Speaker: Well, if he was he did not raise that point of order. I cannot accept it now.

Mr. Winterton: rose—

Mr. Speaker: Order. With the best will in the world, we cannot go back on what happened earlier in the week. I will allow the hon. Member for Macclesfield (Mr. Winterton) to finish his point of order and then that is the end of it.

Mr. Winterton: If you did not hear what went on, Mr. Speaker, many of my hon. Friends and certainly the Press Gallery did. An article appeared in The Sun newspaper the following day—[Interruption.].

Mr. Speaker: Order. We have a very heavy day. Let the hon. Gentleman finish.

Mr. Winterton: —in which it is alleged — I did not interpret it in that way — that the Leader of the Opposition directed a Fascist salute at me and shouted


"Fascist". I do not believe that that remark was directed in my direction. If it was, I believe the right hon. Gentleman would wish to apologise, because he has no grounds for making that remark. Irrespective of that, if he did direct that remark, inadvertently, in an uncontrolled moment, at the leader of the largest group of blacks in South Africa, Chief Gatsha Buthelezi of the Inkatha party, he should also seek an opportunity to apologise to that very distinguished leader of African opinion.

Mr. Speaker: Order. I have allowed the hon. Member to finish in order that we can get on. In this place we cannot rake over events that may have happened earlier in the week simply because of a report in a newspaper.
I have three short statements to make. In the light of the announcement made by the Leader of the House of the proposed dates of return from the recess, questions for oral answer on Tuesday 21 October, Wednesday 22 October and Thursday 23 October may be tabled forthwith. I have directed the Table Office that the shuffles for questions for oral answer on these days be held—

Mr. Winterton: On a point of order, Mr. Speaker —

Mr. Speaker: Order. I am on my feet.
I have directed the Table Office that shuffles for questions for oral answer on these days be held at 6 pm tonight.
I remind the House that on the motion for the Adjournment of the House on Friday 25 July up to eight Members may raise subjects of their own choice with Ministers. Applications should reach my office by 10 pm on Monday next. A ballot will be held on Tuesday morning and the results made known as soon as possible thereafter.
I have to make a further short statement about the arrangements for the debate on the motion for the Adjournment which will follow the passing of the Consolidated Fund Bill on 24 July. Members should submit their subjects to my office not later than 9 am on Wednesday 23 July. A list showing the subjects and times will be published later that day. Normally, the time allotted will not exceed 1½ hours but I propose to exercise discretion to allow one or two debates to continue for rather longer, up to a maximum of three hours. Where identical or similar subjects have been entered by different

Members whose names are drawn in the ballot only the first name will appear on the list. As some debates may not last the full time allotted to them it is the responsibility of Members to keep in touch with developments if they are not to miss their turn.

Mr. Winterton: On a new point of order, Mr. Speaker. In the presence of many Members on this side of the House the Leader of the Opposition has just implied — I am convinced I will be supported by Members on the Tory Benches—that I have been in receipt of funds or money from South Africa or other organisations associated with South Africa. I deny that and I challenge the Leader of the Opposition to withdraw it. It is an unfounded slur which I very much regret and which I cannot believe he intends.

Mr. Speaker: Order. I did not hear anything of that kind—

Mr. Edward Leigh: rose—

Mr. Speaker: I do not need any help. I have not finished. I think that if the Leader of the Opposition did happen to say anything of that kind he would wish to deny it.

Mr. Leigh: Further to that point of order, Mr. Speaker. I distinctly heard the Leader of the Opposition say "Boyo, you got paid."

Mr. Speaker: Order. Yesterday the hon. Member for Macclesfield (Mr. Winterton) quite correctly made some complimentary remarks about the good spirit of the regatta. Let us proceed today in that same good nature —[Interruption.] Order. It is not worth creating a great row about something that may have happened earlier in the week. Let us move on.

Mr. Winterton: On a point of order, Mr. Speaker. I have been accused—

Mr. Speaker: Order. I must ask the hon. Gentleman to contain himself. Statement, the Secretary of State for Scotland.

Mr. Winterton: On a point of order, Mr. Speaker.

Mr. Speaker: Order. I would be very reluctant at this stage in the Session to ask the hon. Member to withdraw but I must now ask him to resume his seat. I call the Secretary of State for Scotland.

Mr. Winterton: Disgraceful.

Tertiary Education (Scotland)

The Secretary of State for Scotland (Mr. Malcolm Rifkind): With permission, Mr. Speaker, I wish to make a statement following consultations on the Scottish Tertiary Education Advisory Council's report on a future strategy for higher education in Scotland, which was published on 9 December 1985.
First, I wish to thank the council for its work. Its report has stimulated wide debate, and there has been particular interest in its proposals with regard to the number of colleges of education in Scotland and future arrangements for the planning and funding of higher education. In these two important areas my conclusions are as follows.
The council endorses the vocational character of the colleges of education and recommends that teacher training should continue to be provided in specialist institutions. I accept that recommendation in principle, while not ruling out entirely the possibility of some other arrangement if circumstances appeared to warrant it. I agree also with the council that there is a very real problem of over-capacity in the colleges, which militates against the best use of the available resources and which must be reduced. The present accommodation will substantially exceed expected demand even in the 1990s, when student numbers are expected to increase to some extent. I consider, however, that there would be merit in seeking to retain, if practicable, a fairly wide geographical spread of provision. I have accordingly decided against closure of any college of education and I intend to seek to achieve the necessary capacity reductions in other ways.
I have reached the following decisions. First, the training of physical education teachers, both men and women, will be centralised on the site of the present Dunfermline college of physical education, and accordingly the training of men PE teachers at Jordanhill college of education will cease. Dunfermline college will itself be merged with Moray House college of education under a single governing body.
Secondly, Aberdeen and Dundee colleges of education will be merged on their existing sites under a single governing body.
Thirdly, the detailed arrangements for bringing these organisational changes into effect will be a matter for discussion between my Department and the governing bodies concerned.
Fourthly, I shall expect all colleges of education, whether or not directly affected by the organisational changes, to take early and strenuous measures to dispose of surplus accommodation on any of their sites, whether for educational or for other use. This will require the cooperation of the colleges themselves, the local authorities and other interests.
Fifthly, my Department will undertake a further programme of course rationalisation designed to make the best possible use of manpower and facilities throughout the college of education sector as a whole, including those colleges— Craigie and St. Andrew's — which are not otherwise directly affected by the organisational changes. I shall review the position again next year in the light of progress made. I must make it clear that, if over-capacity remains a real problem, site closures will then become inevitable.
I believe that it would be appropriate also, as the council recommended, to review the continuation of teacher training at the University of Stirling. I shall be discussing the most suitable form of this review with my right hon. Friend the Secretary of State for Education and Science, involving the University Grants Committee as appropriate.
As for the planning and funding of higher education in Scotland, I accept the council's view that there is scope for improvement in the existing arrangements for the planning and co-ordination of provision across the university and non-university sectors. I agree that there is a gap in the planning process which could better be bridged.
I accept the council's rejection of a planning body for the public sector of higher education only, the bulk of which in Scotland is directly funded by central Government. The situation is different from that obtaining in England and Wales and a planning body for the public sector alone is not required in Scotland. I agree also that the Northern Ireland model would not be appropriate.
Nevertheless, it does not seem sensible to proceed immediately to the establishment of an overarching planning body in Scotland with responsibility for the planning and co-ordination of provision across both the university and the public sectors. Like the council, I regard it as important that planning mechanisms should be backed by appropriate systems for the delivery of results. I have therefore decided to defer a decision on the establishment of such a body until the Government can form a clear view of the future funding arrangements for the Scottish universities. This will require advice, which has already been sought, from the committee chaired by Lord Croham, which is reviewing the UGC, and also from the Advisory Board for the Research Councils. I am in touch with my right hon. Friend and he will be seeking I he ABRC's views shortly. The Government will consider the advisory council's recommendations in respect of planning and funding arrangements for Scottish higher education in the light of the further advice received. I have today given the Government's response to the advisory council's many other detailed recommendations in a written answer to my hon. Friend the Member for Cunninghame, North (Mr. Corrie).
Finally, to allow time for decisions to be taken on planning and funding arrangements, I am asking the Members of the advisory council to serve for one further year until July 1987. This will also enable the council to complete its review of the Scottish Business School, which the chairman now expects will not be possible until late this year. I shall make a further statement to the House when decisions on the matters outstanding are reached.

Mr. Donald Dewar: Any welcome that I give the statement is largely based on what it does not contain. It is tentative and seems confused. The theme is, "I accept this and that, while not entirely ruling out the other." We welcome the fact that no college closures are being announced today and that the Government have accepted, even if half-heartedly, the arguments about the value of the present structure, which is spread geographically throughout Scotland.
Can the right hon. and learned Gentleman tell me what is meant by the sentence about site closures becoming inevitable if over-capacity remains a real problem? How will that be handled? It is still a threat hanging over every


college in Scotland. It cannot be a matter of student numbers, because we know what student numbers will be in a year's time. Will the right hon. and learned Gentleman give every college a target, or will he leave it to boards of governors to cut as they think fit and make an arbitrary judgment at the end? Will a benchmark be set? Is it a matter of cost savings or of building closures? That is a key part of the statement and the right hon. and learned Gentleman must tell us a little more about how it will be judged when the time comes in one short year.
Does the right hon. and learned Gentleman agree that there will be widespread regret at the decision to close the Scottish school of physical education at Jordanhill? It has an honourable place in Scottish education, high standards and an excellent record. Opposition Members recognise the need to integrate the teaching of physical education for men and women—I am not quarrelling with that—but there will be widespread disappointment at the loss of a site with the closure of physical education at Jordanhill.
Do the Government intend that all academic staff should transfer, or will there be job losses? Equally important, can the right hon. and learned Gentleman give any indication of what will happen to other staff who will be involved because of the closure? I understand that there are about 300 students at Dunfermline and about 180 in the physical education department at Jordanhill. What will be the expected student numbers in the combined college when it is established?
Will the right hon. and learned Gentleman publish in full the factors and considerations, and a summary of the advice that he received, on which the decision was taken so that the many people who regret what has happened can examine the possibilities of continuing to operate physical education units on both sites? We would have liked to receive such information. We do not know why it was ruled out. The Secretary of State should make that clear.
What about the decision to merge the management of the colleges at Dundee and Aberdeen, while retaining the two sites? The Secretary of State obviously knows that the two sites are more than 60 miles apart. It seems an odd decision. What savings does he expect which could not have been achieved by separate and independent organisations with their own boards of governors?
To avoid doubt such as lingers in many people's minds, can the right hon. and learned Gentleman rule out the suggestion that the announcement is a preliminary to closing one of the colleges by the back door? What changes in student numbers at the two colleges does he expect during the next year or two?
Will the Secretary of State note that we would have welcomed the decision in principle to set up an overarching body to plan and shape higher education in Scotland? I am aware that Lord Croham's committee is still sitting, but will the right hon. and learned Gentleman give an assurance that Lord Croham and his colleagues have had it drawn to their attention that there is the STEAC recommendation and a substantial body of opinion in Scotland which believes that higher education in Scotland must be seen as a unit so that student numbers and curriculums are planned in an integrated and sensible way?
The Secretary of State said something rather tentatively about one or two important and controversial parts of STEAC. Will he note that I am disappointed that he has not responded to the strong case made by the committee

for linking educational opportunity with the level of student grants? He has not apparently learnt from its approach to student numbers to the end of the century, which contrasts sharply with the miserable and inadequate approach which is shown in the Government's Green Paper on higher education.

Mr. Rifkind: The hon. Gentleman said that he welcomed the Government's statement that there would be no closures of colleges of education and that he would like clarification of what is meant by my statement that if overcapacity remains a real problem site closures will become inevitable. What I mean is quite simple. Nobody disputes the fact that there is substantial over-capacity in the college of education system. In all the forecasts about likely student numbers in the foreseeable future, it is clear that substantial over-capacity will remain. There are two ways in which it can be dealt with. The first is to close colleges, and the second is to get rid of surplus accommodation, which is to be found in pretty well all colleges of education.
For the reasons that I have given, I believe that it is preferable to try to retain teacher training at each of the existing sites. That is why I have not announced any college closures, despite that being STEAC's recommendation. It is preferable to retain teacher training on each site, but that will be a responsible use of resources only if it is possible for colleges to dispose of the surplus accommodation which they do not need now and which they will not need in future.
If we have the co-operation of colleges, local authorities and others with an interest in these matters, there is a reasonable prospect of that end being achieved. If it is achieved, there need be no closure now or in the future on any of the sites. 'If it is not achieved, however, I must be frank with the House and say that college closures will become unavoidable.
The hon. Gentleman also referred to the decision about physical education at Jordanhill. I echo his observations about the fine contribution to physical education that that department has made. My announcement does not reflect in any way on the quality of the work done there. As the hon. Gentleman said, there is agreement that it is necessary to integrate male and female students on a single site.
Dunfermline college is purpose-built for physical education. I assure the hon. Gentleman that the educational arguments which were put to me, and which I have accepted, pointed overwhelmingly to Dunfermline being the site for physical education. By concentrating all physical education students on that site, it is possible substantially to reduce the present under-use of capacity at Dunfermline. As to the implications for the staff at Jordanhill college, we will be discussing this with governors to ensure that there is the minimum disruption in regard to its prospects.
On the question of the merger of Dundee and Aberdeen, I have said to the hon. Gentleman that there were educational reasons, to which STEAC referred, why the number at each of these colleges was approaching a level, or in some cases was at a level, where it was not possible to give the diversity of training and experience that was educationally preferable. For this reason primarily, it is thought desirable to merge the two colleges so that a rationalisation of courses can be attained.
The hon. Gentleman said that he was concerned that this could be closure by the back door. May I say what I


said a few moments ago: if we can get rid of the unnecessary surplus accommodation in the colleges of education of Scotland, it will not be the Government's intention to cease teacher training at any of the present sites, and that includes Dundee and Aberdeen.
Finally, the hon. Gentleman expressed his view that the Opposition were in principle in favour of an overarching body responsible for the planning of higher education in Scotland. In the Government's view, it is unwise to come to a conclusion on this matter until we are able to come to a conclusion on the question of resources. The question whether responsibility for resources should lie with one Department or another is crucial to whether an overarching planning body would he advisory or executive —or, indeed, desirable at all. It therefore seems sensible to decide on these matters when the related questions can also be resolved.

Sir Hector Monro: I give my right hon. and learned Friend a very warm welcome for his statement. Everyone in south-west Scotland, including my right hon. Friend the Member for Ayr (Mr. Younger), and particularly the staff of Craigie college, will be delighted that the college is to remain open and that the close relationship in teaching practice will continue in southwest Scotland.
Is my right hon. Friend aware that the amalgamation of PE teaching at Dunfermline will ensure an ideal centre of teaching excellence? May I expect that PE standards in Scotland, in both quality and facilities, will improve?

Mr. Rifkind: I thank my hon. Friend for his welcome to the proposals.
Craigie has been successful in finding alternative use for much of its surplus accommodation. There is still some surplus capacity, but much is utilised by Ayr technical college. As a consequence, Craigie now has the lowest unit costs of all the colleges in Scotland. One therefore very much hopes not only that Craigie will be able to dispose of any remaining surplus capacity, but that its achievements will be able to be emulated in this respect by other colleges with still greater amounts of surplus accommodation. I have to emphasise that there can be no guarantee for any individual college in Scotland if we are unable to get the overall reduction in surplus capacity that any Government, I believe, would conclude was necessary at present.

Sir Russell Johnston: Is the Secretary of State aware that, like the hon. Member for Glasgow, Garscadden (Mr. Dewar), we very much welcome the decision to keep open the existing colleges? Is he aware that the merging of the organising of the colleges seems in contradiction to the concept of specialist institutions, which he himself warmly commended? In this regard, can he explain the remarkable sentence:
I accept that recommendation in principle, while not ruling out entirely the possibility of some other arrangement if circumstances appeared to warrant it."?
That seems to lack the smack of fervour.

Mr. Rifkind: I thank the hon. Gentleman for his welcome for the Government's decision. I understand that his view is not necessarily shared by all his Liberal colleagues. I understand that the hon. Member for Gordon (Mr. Bruce) indicated that he would wish to see the majority of the colleges retained, thereby implying that

he wished to see others closed. I am not certain which view we should assume to be the official view of the Liberal party.
With regard to the hon. Gentleman's other question, we have accepted the conclusion of STEAC. It seems sensible to retain a separate college of education structure, but this matter deserves continuous consideration. We know that elsewhere in the United Kingdom teacher training occasionally has been attached to other education establishments. There are arguments for and against, which STEAC considered. Therefore, my comment was to indicate that I did not wish to rule out the possibility that at some future date consideration might be given to that matter. However, there is at present no proposal to go in that direction.

Mr. Michael Hirst: I accept the premise of the STEAC report that there needs to be rationalisation in teacher training, but is my right hon. Friend aware that there will be real regret in the west of Scotland at the closure of the Scottish school of physical education at Jordanhill college, which has a long and distinguished history? Can he confirm that he was obliged to make the decision to close the Scottish school of physical education because of the European directive that prohibited single sex physical education?

Mr. Rifkind: My hon. Friend is correct. The European directive indeed required this, although I am bound to say that the Government believe that there are also sound educational reasons why a development of this kind is highly desirable.

Mr. David Lambie: I congratulate the right hon. and learned Gentleman on recognising the need to maintain a fairly wide geographical spread and to maintain Craigie college of education as a centre of higher education for south-west Scotland. This is the third successful campaign in which I have taken part with the right hon. Member for Ayr (Mr. Younger) to safeguard the future of Craigie college. In view of the right hon. and learned Gentleman's answer to the hon. Member for Dumfries (Sir H. Monro), will he now give a guarantee that the decision on Craigie will not be reviewed next year, and that the decision announced today by the Government will be the final one on Craigie, so giving the right hon. Gentleman and myself a rest for the remainder of our parliamentary lives?

Mr. Rifkind: I freely acknowledge that, when the hon. Gentleman and my right hon. Friend combine forces, that is a pretty formidable consideration that I have to bear in mind.
As to the hon. Gentleman's question, in all seriousness, I have to emphasise that I very much wish to retain teacher training at all the existing locations, including Craigie, but this will be possible only if it is shown in the next year that we can dispose of the surplus accommodation in the system. Everybody acknowledges that there is substantial surplus in the system. It has to be disposed of. I hope to be able to do that and avoid the closure of teacher training establishments in any location in Scotland, although I cannot guarantee that that will be possible. That depends not only on the action of the Government, but on the willing co-operation of local authorities, because in some cases change of use and planning permission may be


necessary. It depends on the co-operation of the colleges themselves and on finding acceptable uses for the surplus accommodation in each of the localities.

Mrs. Anna McCurley: I congratulate my right hon. Friend on the retention of all the colleges of education in Scotland. With the elephantine memory that I have of this issue, may I say that I remember that we have a much better record than others for keeping colleges open?
One thing that has always bothered me is the long-term planning of numbers in colleges of education. I am pretty sure that a more efficient system could be used.
I notice that in his statement my right hon. and learned Friend said that he wished to see the colleges revert to their vocational character. Will he consider Jordanhill college particularly, which has a poor level of morale at present and has rather lost its way as a college? Will he pay special attention to reintroducing that vocational character to Jordanhill?

Mr. Rifkind: I thank my hon. Friend for her comments. STEAC emphasised that the vocational character of the college of education was an important characteristic that ought to be preserved. I am happy to endorse that.

Several Hon. Members: rose—

Mr. Speaker: Order. I shall endeavour to call all those Members who wish to speak, but I remind the House that we have a heavy day in front of us, and I would be grateful for brief questions.

Dr. Norman A. Godman: How long will the council continue in existence? The proposal to merge Moray House and Dunfermline college will be greeted with deep dismay at the college in Cramond. Can the Secretary of State give an assurance that the fine work carried out by the college in education and training for the tourist industry will not be harmed in any way by such a merger?

Mr. Rifkind: The STEAC will continue for at least a year, as I said. I believe that my statement about the merger of Dunfermline and Moray House will be warmly welcomed because it involves a substantial additional responsibility for Dunfermline, as it is to become the sole centre for physical education training in Scotland. In addition, the proposed merger with Moray House will have important educational benefits. It is important that teacher trainees in physical education should have greater contact with other teacher trainees and be able to use the facilities of Moray House. That greater link between the two colleges will be to the benefit of trainees and staff at both colleges.

Mr. Barry Henderson: Is my right hon. and learned Friend aware that many people regard this as a wise and imaginative statement which has something of what might be called "Malcolm's Magic"? In particular, is my right hon. and learned Friend aware that it will be regarded as better educationally, financially and geographically than what was first proposed? Given the opportunities that my right hon. and learned Friend has provided for these colleges to use available resources to do wider and different things within those establishments, can

he establish a conference of the colleges concerned and other educational bodies, which together can think of useful schemes to bring this about successfully?

Mr. Rifkind: I thank my hon. Friend for that welcome. I emphasise that it is important for the colleges to appreciate that the alternative accommodation which they are seeking to dispose of need not be used only for educational purposes. If there are alternative educational purposes, there is no objection to that. The important thing is to ensure the disposal of that surplus accommodation. Whether it is used for educational, residential or other purposes is a matter to which the colleges can give equal consideration. The important thing is to ensure that we have a healthy use of the available resources. It cannot be healthy for half empty buildings to continue being financed from available resources. That is not in the educational interest, or in that of colleges.

Mr. Gordon Wilson: I welcome the Secretary of State's announcement that he has recognised the geographical principle that we need a spread of education teaching opportunities. Will he also recognise that the statement is a continuation of 10 years of uncertainty for the colleges and amounts to a stay of execution until after the next general election? In the context of the Dundee and Aberdeen colleges, will the Secretary of State say what rationalisation will take place, what further reductions in student numbers there will be on each site, and what effect that will have on staff? I register my disappointment and that of my party at the Secretary of State's failure to grasp the opportunity given by STEAC for an overarching body.

Mr. Rifkind: I am surprised that the hon. Gentleman refers to my announcement as a stay of execution for Dundee. He appears to believe that it is impossible to dispose of surplus accommodation in Dundee. If that is possible, it is not a stay of execution, but a reprieve, because it means that teacher training will be able to continue on a permanent basis at Dundee.
The hon. Gentleman knows that Dundee college has about one fifth of the students that it needs to utilise its full capacity. The hon. Gentleman cannot be happy that Dundee college is about 80 per cent. unused. He knows the great difficulty that there has been in finding any alternative educational use for that building that would utilise the spare capacity. If the hon. Gentleman and others with an interest in this matter in Dundee, including the local authority and the college, got together and, in cooperation with the Scottish Office, ensured the disposal of the surplus accommodation, allowing teacher training to continue in Dundee with the accommodation that is really needed, teacher training would continue on a permanent basis.

Mr. John Corrie: I support what the hon. Member for Cunninghame, South (Mr. Lambie) said. I congratulate my right hon. and learned Friend on the skilful way in which he has reached his decision. I thank him on behalf of the people of Ayrshire and the south-west of Scotland for keeping Craigie college going. Is it not frightfully important that students go from rural areas to a rural environment college and return to their areas so that there is good liaison between teachers and pupils?

Mr. Rifkind: Yes, that is a desirable objective, and I bore in mind the fact that in England and Wales there is


substantial geographical diversity, which is easier in those two countries because there are relatively few separate colleges of further education and teacher training tends to he linked to other educational training establishments. We have separate colleges of education, which were built larger than is needed in modern circumstances. That is why we have the problem that we are now seeking to resolve.

Mr. Ernie Ross: The Opposition were not surprised that the Secretary of State came to this conclusion, as it is the argument that we have been making since the debate on the Education (Scotland) Act 1981. More recently, in March of this year, my hon. Friend the Member for Carrick, Cumnock and Doon Valley (Mr. Foulkes) had an Adjournment debate on this subject. There is a need for a geographical spread of the colleges. There is a need to see what use can be made of spare capacity. For those reasons, we are not surprised that the Secretary of State has come to this conclusion.
It makes nonsense to have two colleges that are 64 miles apart sharing one governing body. Where will it meet? Will it he offshore, in Montrose, Johnshaven, or Stonehaven? It must lead to concern, and I am sure that if the hon. Member for Aberdeen, North (Mr. Hughes) catches your eye, Mr. Speaker, he will make the same point. There must be pressure on these colleges of education. We do not regard them as sites. They are colleges with people — teachers, staff and students. There must be some concern about the statement and its effect on Aberdeen and Dundee.

Mr. Rifkind: I hope that there will continue to be teachers, pupils and staff in both cities for the foreseeable future. While the hon. Gentleman is correct to say that he and his hon. Friends have continually said that they are against college closures, they have not demonstrated their commitment to seeking the disposal of surplus accommodation. That is a crucial part of the strategy.
I emphasise that it is not sufficient simply to say that we must not close colleges. At the moment there are 5,000 teacher trainees in Scotland. It is expected that there will be a maximum of 7,500 in years to come. The college capacity is about 10,000. Unless we can bridge the gap between what is needed and what is not, it is inevitable that some colleges will close. We all wish to avoid that, and we can do so if we have maximum co-operation.

Mr. Jim Craigen: The Secretary of State has been evasive about a number of key issues facing tertiary education in Scotland. Why did he take the political decision to smash the physical education facilities at Jordanhill, which must surely override some of the economic, social and geographical factors involved?

Mr. Rifkind: That is an extraordinary and absurd remark. Far from it being a political decision, I remind the hon. Gentleman that we are required by the European directive to eliminate single sex education in physical education. The numbers involved could not possibly justify having male and female students at both Jordanhill and Dunfermline, and in Dunfermline we have the only purpose-built college of physical education in Scotland. If the hon. Gentleman cannot see the logic in that, nothing that I say will convince him.

Mr. Charles Kennedy: I welcome the tribute that the Secretary of State has paid to

Jordanhill. Can he be a little more explanatory? When he speaks about the minimal disruption that he hopes will follow consultation—[HoN. MEMBERS: "Where is the right hon. Member for Glasgow, Hillhead (Mr. Jenkins)?"] My right hon. Friend is in hospital recovering from an operation. Has the Secretary of State any ideas on whether that minimal disruption following consultation with the governors will involve lay offs and transfers?

Mr. Rifkind: It would be wrong for me to speculate on that matter before we discuss it with the governors. Clearly the transfer of a significant number of students from Jordanhill to Dunfermline college will involve some opportunities for staff. However, the conclusion on that must await detailed discussions, and I do not want to give a misleading answer that might not be borne out by events.

Mr. Martin J. O'Neill: Will the Secretary of State be more forthcoming about the inquiry that he hopes to institute in conjunction with the UGC about the education department at Stirling university, bearing in mind the need for a geographical spread of colleges and facilities in Scotland? Central region lost Callander Park after the college had done everything that the Secretary of State is now recommending to other colleges, namely, to rent out all available surplus accommodation within its campus. At the end of the day the college was still closed. Can the Secretary of State assure us, therefore, that there will be a full and fair review in conjunction with the UGC, unlike some of the reviews that have been carried out recently? Will he also make it clear that in the recent past other Ministers in his Department have closed colleges even though those colleges had done everything they could to rid the Scottish taxpayer of the burden of the cost of the surplus accommodation?

Mr. Rifkind: The hon. Gentleman will know that responsibility for universities lies not with me but with my right hon. Friend the Secretary of State for Education and Science. The Scottish Tertiary Education Advisory Council recommended a review of the position at Stirling university with regard to teacher training. In conjunction with my right hon. Friend, I have accepted that recommendation. We must await the outcome of that review.

Mr. George Foulkes: May I thank you, Mr. Speaker, for the honour that you keep bestowing on me of giving me the last word on these occasions?
I hope that I am in order in adding my thanks to the Secretary of State for Scotland for accepting the powerful educational, geographical and economic argument that was put on behalf of Craigie college, not just by my hon. Friend the Member for Cunninghame, South (Mr. Lambie) and by the right hon. Member for Ayr (Mr. Younger), but by all people in the south-west of Scotland. It is only marred a little by the year's review, which is perhaps piling up work for my hon. Friend the Member for Glasgow, Garscadden (Mr. Dewar).
Can the Secretary of State assure us, because worry arises from one or two things that he has repeated in his statement, that colleges like Craigie, which are getting rid of surplus accommodation or are making effective use of it, will not be penalised because big colleges like Moray House and Jordanhill do not over the next year get rid of


surplus accommodation, as the Secretary of State recommends? Can he make it clear that he will put pressure on colleges that have surplus accommodation either to use it effectively or to dispose of it so that colleges that do as he asks will not suffer?

Mr. Rifkind: I am grateful to you, Mr. Speaker, for allowing me to have the last word. I am overwhelmed by the combined congratulations of the hon. Member for Cunninghame, South (Mr. Lambie) and the hon. Member for Carrick, Cumnock and Doon Valley (Mr. Foulkes). It is an experience with which I am not familiar and I suspect that it will not often be repeated.
I accept their requirement to put maximum pressure on all colleges of education that have surplus capacity. I have given no assurances to any college as to its long-term future if surplus capacity is not removed. If it is possible to speak on behalf of both sides of the House, it is highly desirable for all colleges, including the larger ones, to get rid of surplus accommodation. They will do a service not only to themselves but to the interests of teacher training in Scotland as a whole.

Mr. Speaker: Perhaps I may have the last word on the last question. I say to the hon. Member for Carrick, Cumnock and Doon Valley (Mr. Foulkes) that if he cannot be first he might as well be last.

Mr. Foulkes: And the last shall be first.

Mr. Speaker: Even that.

Orders of the Day — Finance Bill

Not amended in the Committee and as amended (in the Standing Committee), further considered.

Ordered,
That the order [8 July] be amended and that the Bill, as amended, be further considered in the following order, namely, new clause No. 18, new schedule (Broadcasting: Additional Payments by Programme Contractors), new Clauses Nos. 26 to 30 and 32, Amendments relating to Clauses Nos. 64 to 94, other new Clauses, and Amendments relating to Clauses Nos. 1 to 3, Schedules Nos. 1 and 2, Clauses Nos. 4 and 5, Schedule No. 3, Clause No. 6, Schedule No. 4, Clauses Nos. 7 and 8, Schedule No. 5, Clause No. 9, Schedule No. 6, Clauses Nos. 10 to 31, Schedule No. 7, Clauses Nos. 32 to 38, Clause No. 40, Schedule No. 9, Clauses Nos. 41 and 42, Schedule No. 10, Clauses Nos. 43 and 44, Schedule No. 11, Clauses Nos. 45 and 46, Schedule No. 12, Clauses Nos. 47 to 55, Schedules Nos. 13 and 14, Clause No. 56, Schedule No. 15, Clause No. 57, Schedule No. 16, Clauses Nos. 58 to 62, Schedule No. 17, Clause No. 63, Schedule No. 18, Clauses Nos. 95 and 96, Schedule No. 19, Clause No. 97, Schedule No. 20, Clauses Nos. 98 to 104, Schedule No. 21, Clauses Nos. 105 to 108 and Schedule No. 22. — [Mr. Norman Lamont.]

Mr. Speaker: In addition to the amendments set out in my provisional selection, which has already been circulated, I am selecting amendment No. 19, standing in the name of the hon. Member for Leyton (Mr. Cohen). That amendment is to be found on page 2083 of the amendment paper and it will be taken immediately after Government amendment No. 102 and its related amendments.

New Clause 18

BROADCASTING: ADDITIONAL PAYMENTS BY PROGRAMME CONTRACTORS

.—(1) The Broadcasting Act 1981 shall have effect with respect to additional payments payable by programme contractors under that Act subject to the amendment made by Part I of Schedule (Broadcasting: additional payments by programme contractors) to this Act.
(2) The transitional provisions made by Part II of that Schedule shall have effect.
(3) This section shall be deemed to have come into force on 1st April 1986.—[Mr. Giles Shaw.]

Brought up, and read the First time.

Mr. Speaker: With this it will be convenient to take Government amendments Nos. 29 and 30.

The Minister of State, Home Office (Mr. Giles Shaw): I beg 10 move, That the clause be read a Second time.
I feel somewhat honoured to move a new clause to the Finance Bill which relates directly to the affairs of the Home Department, but that is the position I am in today.
New clause 18 and amendments Nos. 29 and 30 seek to implement proposals relating to the scheme of additional payments in the Broadcasting Act 1981, commonly known as the ITV levy. The Government's proposals for changing the structure of the levy were announced earlier this year by my right hon. Friend the Home Secretary.
When the levy was first introduced in 1964, it was based on ITV contractors' revenue. The revenue-based levy proved, however, to be a rather blunt instrument and it was replaced in 1974 by a 66·7 per cent. levy on profits


from the provision of programmes within the United Kingdom. Subject to some minor modifications, the arrangements which were introduced then are those which now remain on the statute book. The problem with a profits levy with a rate as high as 66·7 per cent. is, however, that, taken together with corporation tax, it imposes a very high marginal tax rate on the ITV companies. While the Act contains safeguards against excessive expenditure, Ministers have for some time been concerned that the high marginal rate might act as a disincentive to cost efficiency, and this view has been reinforced more recently by the Peacock committee. Accordingly, a working group of officials from the Home Office, Treasury and IBA was set up in 1984 to look at the structure of the levy, and in particular at ways in which the marginal rate might be reduced.
The working group reported to Ministers in May 1985. Coincidentally, the Committee of Public Accounts also examined the levy in 1985. In the light of the Committee's report, which was published last autumn, and that of the working group, we decided that implementation of the working group's central recommendation would be a worthwhile exercise. Accordingly, the amendments to which I am speaking seek to reduce the standard rate of levy from 66·7 per cent. to 45 per cent., while removing the current exemption from levy of overseas profits and imposing on them a levy of 22·5 per cent. The reduction in the standard rate of levy will provide a worthwhile reduction in the marginal tax rate which should provide the companies with an increased incentive to efficiency.
We are well aware of the need to preserve an incentive for the companies to export programmes, and that is why we have set the second rate of levy at 22·5 per cent., exactly half the standard rate. There is no particular magic in this ratio between the two rates and we shall want to monitor the position carefully over the next year or so. Under the new provisions, as now, rates of levy can be changed by order subject to the approval of both Houses of Parliament, and if there are any unforeseen results we shall want to consider whether the balance between the two rates might be adjusted. The rates currently in the new schedule have been set so as to secure broadly that there is the same revenue to the Exchequer.
We have also made it clear that we intend to implement some of the working group's minor recommendations and — apart from the reduction of the ILR levy rate, the radio provision, to zero, which was achieved by a statutory instrument which took effect on 1 April — this too is done by the amendments before us. The cash value of the "free slice" of non-leviable profits is increased from £650,000 to £800,000, to take account of inflation since it was last altered in 1982. Any proportion of the free slice which remains after it has been set against profits in the main category may be transferred to the second category of leviable profits. There are provisions dealing with loss relief, and the working group's recommendations on the provisions of the existing legislation which deal with refunds from the Consolidated Fund of levy overpayments, and with excessive expenditure, are also implemented in these provisions.
It may be of assistance if I now give a brief explanation of the new provisions dealing with the levy. New clause 18 does no more than give effect to the new schedule, and provides for the arrangements to take effect from 1 April, as announced by my right hon. Friend the Home Secretary on 27 March. Paragraph 1 of the new schedule provides

for leviable profits to be divided into "first category profits" which, broadly speaking, will be profits from the provision of programmes for broadcasting on ITV or the fourth channel, and "second category profits" which will be profits from the provision of programmes elsewhere in the United Kingdom and abroad. The new rates of levy and the new value of the free slice are set out in paragraph I, which also makes a number of minor consequential amendments to section 32 of the 1981 Act.
Paragraph 2 implements the working group's recommendation that it should be possible for refunds of overpayments of levy to be made during the accounting period in which the overpayments were made. Paragraph 3 makes two sets of changes to section 35 of the 1981 Act, which contains the Home Secretary's power to prescribe —subject to the approval of Parliament—a company's minimum levy liability in the case of excessive expenditure.
The first change is to implement the working group's recommendation that it should be possible for an order under section 35 to be made for a limited period after the end of the accounting period to which it relates; the time limit is now to be six months from the date on which the contractor submits his audited accounts to the IBA.
The second set of changes is designed to deter second category levy avoidance by providing the Home Secretary with the power — subject again to the approval of Parliament— to make a section 35 order where a contractor's second category levy payments are deficient as a result of transfer pricing. I should stress that this is a weapon very much of last resort against levy avoidance of a kind which I hope will not occur. It is to be seen as a deterrent rather than a provision of normal use. I do not believe that it has been used to date.
Paragraph 4 contains the necessary detailed definitional changes consequent on the division of the levy into two parts. It also removes the current exemption for profits arising outside the United Kingdom, and implements—although these provisions are not backdated before I April —the working group's recommendations on loss relief. The definitions of first and second category profits are mutually exclusive, and the first category is defined rather more narrowly than the existing category of leviable profits since it will, in future, consist only of profits from the provision of programmes for broadcasting on ITV and the fourth channel.
Profits from the sale of publications such as the "TV Times" will, however, continue to come within first category profits. "Second category profits" are defined in such a way as to ensure profits from the sale of formats — the ideas behind a television programme, a kind of synopsis on which they are able to sell programmes abroad —are treated in the same way as profits from the sale of programmes. The profits of certain related companies will be relevant for the calculation of a company's second category levy liability. This is because programme sales are frequently handled not by the contractor himself but by a connected company.
Under the loss relief system in the new paragraph 2C of schedule 4 to the 1981 Act, companies may carry forward losses in either category provided they have first set them against any profits in the other category for the accounting period in question. Losses may not, however, be carried between one contract period and another.
Paragraphs 5, 6 and 7 make consequential amendments to provisions in the current legislation. Paragraph 8 redefines "subsidiary" for the purpose of the levy


provisions, and defines the connection which will be sufficient to bring a related company's profits into the calculation of second category profits. A subsidiary of a contractor is defined as a company in which the contractor has 10 per cent. of the shares or the voting power; and a "connected person" consists of a subsidiary of an ITV contractor; an investor who holds 10 per cent. of the contractor's shares or voting power; and a subsidiary of an investor of this kind. Companies engaged in programme distribution by wireless telegraphy or cable do not, however, fall within this definition. Paragraph 8 also contains an apportionment rule where a single person falls into more than one category of programme contractor.
Paragraphs 9 and 10 contain transitional provisions dealing with existing contracts between the IBA and programme contractors, and with profits or losses occurring in accounting periods which straddle the change in levy arrangements.
Finally, amendment No. 30 consists of consequential repeals to the existing legislation on the levy.

Mr. Michael Morris: My hon. Friend referred to the report of the Public Accounts Committee. I have taken a particular interest in the subject since it originally came before the Committee. This is the second time that it has come before the Committee.
I welcome the new clause. I shall cite one figure from the report of the Comptroller and Auditor General entitled "Independent Broadcasting Authority: Additional Payments by Programme Contractors" dated 29 April 1985. Appendix I referred to the year 1982–83 and said that Thames, which is not a small station by any yardstick, managed to have a levy payment of absolutely nil. The report showed that Central, which serves a marginal part of my constituency—again, it is hardly a minor contractor — paid £211,000. That showed the Public Accounts Committee that the machinery available — there is nothing wrong with that necessarily — was used to ensure that the Revenue received little benefit from the levy.
I think that my hon. Friend is right to have a substantial differential between the export levy and the domestic levy. I am told that for the first five months of the current year revenue is up 22 per cent. The figure for June is extraordinary. Revenue is up 28 per cent. Given that the Peacock committee never addressed the problem of the inflationary increases in television advertising rates, compared with the retail price index, my hon. Friend must recognise that careful monitoring of work is required. It is a buoyant area of revenue. If my hon. Friend is prompted, as a result of the Peacock committee, to extend the life of the existing contractors, he must consider forecasts of revenue and watch them carefully. I shall be urging my colleagues on the Public Accounts Committee to review the position at a convenient date. If there is to be an extension of the existing licences, a further review will be necessary.
I have been concerned with the work of the British Overseas Trade Board. If my hon. Friend is to garner revenue from the export activities of our contractors—may they continue to be highly successful—I hope that a proportion of that revenue will go to the BOTB, because it has had a cutback. The board does major work in the interests of United Kingdom exports.

Mr. Robert Rhodes James: I congratulate my hon. Friend on keeping a straight face when he introduced the new clause. Paragraph 10(2), page 2050, of the extraordinary document entitled "Consideration of Bill" shows X over X plus Y. At that stage, X is obviously a good person. The subparagraph continues:
the amount payable by him on the assumption that that section was in force throughout the accounting period and that both his first category profits for that period and his second category profits for that period were reduced by multiplying them by Y/X+Y;
where (taking any odd four days or more as a week)".
My hon. Friend and I were at school together. How does one take any odd four days or more as a week? Enlightenment follows:
X is the number of weeks in the accounting period falling before 1st April 1986"—
that is a significant date in the new clause—
and Y is the number of weeks in the accounting period falling after 31st March … For the purposes of the application of paragraph 2C of Schedule 4 to the Act of 1981 in relation to losses incurred by the programme contractor during the accounting period, those losses shall be reduced by multiplying them by"—
wait for it—
Y/X+Y where X and Y have the same meaning as in sub-paragraph (2) above.
With all respect to my hon. Friend and the Chancellor of the Exchequer, words fail me. It is a seven-page new clause. How on earth is it possible to ask Parliament to pass a new clause that is absolute gibberish, and require the courts to enforce it? I suggest strongly to my hon. Friend, to whom I am devoted, that it is absolute nonsense and completely inexplicable.

Mr. Michael Morris: rose—

Mr. Rhodes James: Does my hon. Friend wish to explain it? Does he know whether it is X or Y?

Mr. Morris: The Public Accounts Committee looked into this matter in considerable depth. I urge my hon. Friend to read the report; he might be enlightened.

Mr. Rhodes James: I shall be grateful for any enlightenment, but this is to be an Act of Parliament. I feel strongly that Acts of Parliament should he written in the English language. The new clause is not. If my hon. Friend knows what X or Y is, that is fine. However, Parliament should not willingly or silently allow new clauses like this to pass without comment.

Mr. Robin Corbett: Like the Minister, I am a rare intruder into debates on the Finance Bill. I spend most of my time very much backstage in the quieter, calmer waters of home affairs. It is a rare treat to be able to look at this new clause and new schedule.
I deeply sympathise with the elegant remarks of the hon. Member for Cambridge (Mr. Rhodes James). The timing of the debate is interesting. It enables us, however briefly, to comb through the rubble of what is left of the Government's broadcasting policy after the botch-up over community radio and the nonsense of the Peacock committee report.
It is as well to remind ourselves of the purpose of the levy. It is, as Peacock noted in a rare, clarifying comment in paragraph 68,
to provide the public with an appropriate share in the monopoly exploitation of a profitable public asset"—


and then, in case we had not got the point, the words
(ie the airwaves)
were added in brackets. We understand the arguments behind the changes in loss relief, overpayments and minimum levy liability. However, I ask the Minister to confirm—and to that extent to repeat and refresh—the Government's continued support for the idea of the levy, in the terms set out in the Peacock report. Will he assure the House that whatever the changes in the levels of levy and the mechanisms by which it is calculated, it remains the Government's policy to require commercial television companies to continue to give hack to the public purse a share of the profits made from their monopoly position?
The levy is important on those grounds, helping—as I believe it does—to sustain our complementary rather than directly competitive system of public service broadcasting through the BBC and the commercial sector. It is not clear whether the levy charges—a cut of 21·7 per cent. in the main rate, a rise of E150,000 in the free slice and a rate of 22·5 per cent. on the second category of profits that are earned overseas—will mean more or less revenue for the public purse.
I believe that the Minister said that the revenue effects would be broadly the same as the present position and that his estimate was that the levy changes may mean that more money will be left to the contractors. I do not necessarily object to that. However, if that is the case, what assurances have the IBA and the programme contractors been able to offer about how much of that windfall, if it turns out to be a windfall, will find its way hack into programmes? That is what it should all he about: trying to ensure that the range, variety and quality of programmes improve and expand.
That is especially important for our regional commercial television contractors. There is an increasing and, in my view, a proper demand within the regions for more bespoke, regionally made programmes which better reflect the diversity and difference of interests within our regions. I am a strong supporter of that demand and in my area I was glad that when the last franchise was awarded Central Independent Television was required to treat the east midlands as a centre in its own right rather than simply as a place at the end of the motorways from Birmingham.
Of course, regional programme makers also compete for networking, and perhaps the latest and most brilliantly successful example—which happens to be from Central Independent Television — is "Spitting Image", which lately swept the nation with its puzzling invitation to us all to hold a chicken in the air.
5.15 pm
May I ask the Minister whether decisions have yet been taken on the next round of franchises? There are anxieties among the franchise holders over reported Government plans to try to extend the present franchises for an extra two years, as the Government ponder the ponderous Peacock proposals. Is the Minister able to announce any decisions today, or is he able to give an undertaking about when a statement will be made? Will he assure the House that any such statement on franchises will be made on the Floor of the House? The Opposition would not be in favour of fiddling the franchises, although there are some changes in their allocation and perhaps in their duration which we would think sensible.
I welcome the inclusion in the new schedule of advertising receipts and income from direct broadcasting by satellite contractors. Again, this is on all fours with the principle of paying the public for the exploitation of public property.
Finally, I should like to express the hope that these levy changes will both enable and encourage programme makers and commercial contractors to develop and produce a range of programmes that can help us in the years ahead to sustain our claim to have one of the finest television services in the world. That position was hard won by the BBC and the commercial companies, and it will only be with care, dedication and innovation that that reputation will be sustained.

Mr. Giles Shaw: With the leave of the House, may I comment on the points raised by my hon. Friend the Member for Northampton, South (Mr. Morris). I thank him for the welcome that he gave these proposals. He is well versed in the mechanics of the levy system and also, through his assiduity as a member of the Public Accounts Committee, in the examination of the existing levy. I have to remind him that the vagaries of advertising revenue sometimes surprise all of us.
My hon. Friend will recall that only about nine or 12 months ago there was a major downturn in advertising receipts for the television companies. Now, as he rightly pointed out, they are fairly buoyant. It would be difficult for us to take into account a more flexible assessment of the levy system if we were to look merely at one year's performance compared with another. My hon. Friend will be aware that with this instrument, which is variable by order, there is a mechanism whereby adjustments can he made to suit what looks like a trend, if that trend requires changes to be made.
I noted my hon. Friend's welcome of the differential between the home levy base and the overseas levy base. When companies come to terms with the change, they will find that it is not inimical to development. We hope that it will contribute to the thrust of ensuring that cost pressures of one kind or another prevail within an industry which, at the moment, lacks competitive pressure. I shall turn to that point when I deal with the speech of the hon. Member for Birmingham, Erdington (Mr. Corbett).
I understand the anxiety of my hon. Friend the Member for Cambridge (Mr. Rhodes James) about the algebraic formula in the amendment. With his profundity he will recognise that this system lends itself to a form of expression which he and I find pretty miserable. However, we shall have to settle our differences by saying that this is merely corroborative detail and that it adds artistic verismilitude to an otherwise bald and unconvincing narrative.
I am able to give the hon. Member for Erdington the assurance that he sought. No decision has been taken on franchises and no decision will be taken for some time. However, in my right hon. Friend's initial response to the Peacock recommendations he told the IBA that there must be room for franchises to be looked at, should the Government subsequently decide that changes are required.
Therefore, there will be discussions to see that the current round would not be started without some assessment being made of the position. I think that the hon. Gentleman will recognise also that significant


changes are likely to involve amendment to the current statutory framework which will probably not happen soon.
Monopoly characteristics lie behind the levy system which is designed to ensure, to some extent, on behalf of the consumer and the taxpayer, that where local monopolies granted for television advertising are in the hands of the programme contractors, there will be a mechanism to cream off surplus profit. How such profits are spent is a matter for the contracting companies only and it is not for the Government to determine whether they should all go into programme production, or into other forms of expenditure.
However, over the considerable period of time that the levy system has been operating, the quality of programming has improved, which shows that the companies are keen to compete on the basis of quality as well as upon audience numbers.
The House will be kept informed of any major changes in Government policy on ITV, much of which would relate to legislation which hon. Members would have an opportunity of shaping. This new clause appears to command reasonable support, and I therefore commend it to the House.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Schedule

`BROADCASTING: ADDITIONAL PAYMENTS BY PROGRAMME CONTRACTORS

PART I

Amendment of Broadcasting Act 1981

1.—(1) Section 32 of the Broadcasting Act 1981 (rental payments by programme contractors) shall be amended as follows.
(2) the following Table shall be substituted for the Table in subsection (4)—

"TABLE


RATES OF ADDITIONAL PAYMENTS



Rate for determining amount of additional payments


First category profits



For so much of the first category profits for the accounting period as does not exceed the free slice for those profits.
Nil.


For so much of the first category profits for the accounting period as exceeds the free slice for those profits.
The first category rate.


Second Category profits



For so much of the second category profits for the accounting period as does not exceed the free slice for those profits
Nil.


For so much of the second category profits for the accounting period as exceeds the free slice for those profits
The second category rate."

(3) After subsection (4) there shall be inserted the following subsection—
(4A) For the purposes of this section—
first category profits" and "second category profits" shall be determined in accordance with

the provisions of Schedule 4 to this Act;
first category rate' means—

(a) in relation to additional payments payable by virtue of subsection (1)(b)—

(i) nil, in the case of persons who are DBS programme contractors of DBS teletext contractors; and
(ii) 45 per cent. in any other case; and

(b) in relation to additional payments payable by virtue of subsection (2)(b), nil "free slice" means—

(a) in relation to first category profits, £800,000 or 2·8 per cent. of the advertising receipts for the accounting period (whichever is the greater); and
(b) in relation to second category profits, the amount (if any) by which the free slice in relation to first category profits exceeds the first category profits for the accounting period; and


"second category rate" means—

(a) in relation to additional payments payable by virtue of subsection (1)(b)—

(i) nil, in the case of persons who are DBS programme contractors or DBS teletext contractors; and
(ii) 22·5 per cent. in any other case; and

(b) in relation to additional payments payable by virtue of subsection (2)(b), nil."

(4) In subsection (5) for the words from "sum", where it first occurs, to "above" there shall be substituted the words
relevant sum mentioned in subsection (4A)".
(5) In subsection (8) for the words "subsections (4)" there shall be substituted the words "any of the provisions of subsections (4), (4A)".
(6) In subsection (9)—

(a) the words "to amend subsections (4) and (5)" shall he omitted;
(b) for the words "those subsections", where they first occur, there shall be substituted the words "the provisions in question";
(c) for the words "those subsections", where they next occur, there shall be substituted the words "those provisions"; and
(d) for paragraph (c) there shall be substituted the following paragraphs

(c) only in their application in relation to first category profits of all, or specified, kinds;
(d) only in their application in relation to second category profits of all, or specified kinds; or
(e) differently in their application as mentioned in paragraphs (a) to (d) respectively".

2. — (1) Section 34 of the Act of 1981 (instalments payable on account by programme contractors in respect of additional payments) shall be amended as follows.
(2) In subsection (2)(b) the words from "when the" to the end shall be omitted.
(3) For subsection (3) there shall be substituted the following subsection—
(3) Where any amount falls to be paid to a programme contractor to adjust any overpayment made by him, that amount shall be paid to him—

(a) if the contract is for the supply of programmes to be broadcast for reception in areas or localities all of which are in Great Britain, out of the Consolidated Fund of the United Kingdom;
(b) if the contract is for the supply of programmes to be broadcast for reception in areas or localities all of which are in Northern Ireland, out of the Consolidated Fund of Northern Ireland; and
(c) if the contract is one which falls within subsection (2) of section 33, out of each of those Funds apportioned in the same way as receipts are apportioned under subsection (3) (c) of that section."

3. — (1) Section 35 of the Act of 1981 (provision for supplementing additional payments) shall be amended as follows.
(2) In paragraph (a) of subsection (1) the words "or is" shall be inserted after the word "is", where it last occurs.
(3) For paragraph (b) of that subsection there shall be substituted the following paragraph—
(b) the deficiency is, or would be, wholly or mainly attributable to either or both of the following—

(i) excessive expenditure forming part of the expenditure by reference to which those additional payments fall to be calculated;
(ii) in the case of second category profits, the receipt of consideration for the provision of any programme which is less than that which the contractor would have received had the transaction in question been in all respects at arm's length."

(4) In subsection (4), for the words "the accounting period to whichis relates" there shall be substituted the words "the period of six months beginning with the date on which the programme contractor furnishes to the Authority, in accordance with the terms of his contract as a programme contractor, a copy of his audited accounts for the accounting period to which the order relates".
(5) After subsection (2) there shall be inserted the following subsection—
(2A) In determining, for the purposes of subsection (1) of this section, whether in the case of a programme contractor any consideration received by him for the provision of any programme is less than that which the contractor would have received had the transaction in question been in all respects at arm's length, the Authority or the Secretary of State, as the case may be, shall have regard to such matters as they or he may consider relevant, and in particular to any available information as to—

(a) the consideration received for the provision by the contractor of the programme in other comparable markets;
(b) the consideration received by that or any other programme contractor for the provision of other comparable programmes in the same market."

4. For paragraph 2 of Schedule 4 to the Act of 1981 there shall be substituted the following paragraphs—
2. A programme contractor's first category profits for an accounting period shall he ascertained in accordance with paragraph 2A and his second category profits for that accounting period shall be ascertained in accordance with paragraph 2B.

First category profits
2A.—(1) First category profits shall consist of the excess of relevant first category income over relevant first category expenditure.
(2) In this Schedule "relevant first category income" means—

(a) in relation to any programme contractor other than a DBS programme contractor or DBS teletext contractor, any income of his which is attributable to the provision by him of any programme for broadcasting on ITV, the Fourth Channel or a local sound broadcasting service (whether that programme is provided in the first place to the Authority or to any other person); and
(b) in relation to any DBS programme contractor or DBS teletext contractor, any income of his which is attributable to the provision by him to the Authority, in accordance with the terms of his contract as a DBS programme contractor or (as the case may be) DBS teletext contractor, of any programme for broadcasting in the Authority's DBS service to which his contract with the Authority relates.

(3) without prejudice to the generality of sub-paragraph (2), "relevant first category income" includes

(a) advertising receipts;

(b) income attributable directly or indirectly to any publication whose content (other than advertising) is wholly, or mainly, connected with programme schedules and scheduled programmes; and
(c) such part of any income which—

(i) accrues to any subsidiary of the programme contractor concerned; and
(ii) would be relevant first category income of that contractor if he and the subsidiary were a single programme contractor;

as, in the opinion of the Authority, should be attributed to the contractor as reflecting his financial interest in the subsidiary.

(4) In this Schedule "relevant first category expenditure" means any expenditure of the programme contractor concerned which is properly chargeable to revenue account and which is incurred in connection with the provision by him of—

(a) programmes of a kind mentioned in sub-paragraph (2)(a), in the case of a contractor who is not a DBS programme contractor or DBS teletext contractor; or
(b) programmes of a kind mentioned in sub-paragraph (2)(b), in the case of a DBS programme contractor or DBS teletext contractor.

(5) Without prejudice to the generality of sub-paragraph (4), "relevant first category expenditure" includes—

(a) expenditure in connection with the sale of rights to insert advertisements in programmes;
(b) expenditure in connection with any publication whose content (other than advertising) is wholly, or mainly, connected with programme schedules and scheduled programmes;
(c) such part of any expenditure which—

(i) is incurred by any subsidiary of the programme contractor concerned; and
(ii) would be relevant first category expenditure of that contractor if he and the subsidiary were a single programme contractor;

as, in the opinion of the Authority, should be attributed to the contractor as reflecting his financial interest in the subsidiary; and
(d) in the case of a DBS programme contractor or DBS teletext contractor, any expenditure incurred by him in connection with the provision of the satellite transponder.

(6) In ascertaining relevant first category income or relevant first category expenditure no account shall be taken of interest on any loan.
(7) Where relevant first category income consists of advertising receipts, it shall be attributed to accounting periods in accordance with the foregoing provisions of this Schedule and the same principle shall be followed in relating other items of relevant first category income, and items of relevant first category expenditure, to accounting periods.
(8) In this paragraph "programme" means—

(a) in the application of this Schedule in relation to the additional payments mentioned in section 32(1)(b), a television programme; and
(b) in its application in relation to the additional payments mentioned in section 32(2)(b), a local sound broadcast.

Second category profits,
2B. — (1) Second category profits shall consist of the excess of relevant second category income over relevant second category expenditure.
(2) In this Schedule 'relevant second category income' in means any income of the programme contractor concerned which is not relevant first category income but which accrues to him in connection (directly or indirectly) with the provision by him, for broadcasting, distribution or showing (whether or not within the United Kingdom)—

(a) in the case of a progamme contractor other than a DBS programme contractor or DBS teletext contractor, of any programme provided by him for broadcasting on ITV, the Fourth Channel or a local sound broadcasting service, or intended by him to be so provided; or
(b) in the case of a DBS programme contractor or MIS teletext contractor, of any programme broadcast in


the Authority's DBS service to which his contract with the Authority relates, or intended to be so broadcast.

(3) Without prejudice to the generality of sub-paragraph (2), "relevant second category income" includes any income which—

(a) accrues to any person connected with the programme contractor concerned; and
(b) would be relevant second category income of that contractor if he and that person were a single programme contractor.

(4) In this Schedule "relevant second category expenditure" means any expenditure properly chargeable to revenue account which is not relevant first category expenditure but which is incurred by the programme contractor concerned in connection (directly or indirectly) with the provision by him of any programme of a kind mentioned in sub-paragraph (2) (a) or (as the case may be)(b) above.
(5) Without prejudice to the generality of sub-paragraph (4) above, "relevant second category expenditure" includes any expenditure which—

(a) is incurred by any person connected with the programme contractor; and
(b) would be relevant second category expenditure of that contractor if he and that person were a single programme contractor.

(6) In ascertaining relevant second category income or relevant second category expenditure no account shall be taken of interest on any loan.
(7) Items of relevant second category income and items of relevant second category expenditure shall be attributed to accounting periods in accordance with the foregoing provisions of this Schedule.
(8) In this paragraph "programme" means—

(a) in the application of this Schedule in relation to the additional payments mentioned in section 32(1)(b), a television programme; and
(b) in its application in relation to the additional payments mentioned in section 32(2)(b), a local sound broadcast.

Carry forward of certain losses
2C.—(1) Where, in any accounting period, the relevant first category expenditure of a programme contractor exceeds his relevant first category income sub-paragraph (3) shall apply.
(2) Where, in any accounting period, the relevant second category expenditure of a programme contractor exceeds his relevant second category income sub-paragraph (4) shall apply.
(3) Where this sub-paragraph applies—

(a) the excess shall, if the programme contractor has any relevant second category profits for the accounting period, be set against relevant second category income for that period as if the excess were relevant second category expenditure; and
(b) if any part of the excess then remains it shall be carried forward to the following accounting period and treated as relevant first category expenditure for that period.

(4) Where this sub-paragraph applies—

(a) the excess shall, if the programme contractor has any relevant first category profits for the accounting period, be set against relevant first category income for that period as if the excess were relevant first category expenditure; and
(b) if any part of the excess then remains it shall be carried forward to the following accounting period and treated as relevant second category expenditure for that period.

(5) Where a programme contractor's contract with the Authority comes to an end, no losses incurred at any time during the currency of that contract may be carried forward under this paragraph and set against income attributable to any subsequent contract between him and the Authority.
5. In paragraph 3 of Schedule 4 to the Act of 1981—

(a) in sub-paragraph (1)(a), for the words "relevant income and relevant expenditure" there shall be substituted the words "income and expenditure of

any category" and for the words "the profits" there shall be substituted the words "relevant category of profits"; and
(b) in sub-paragraph (1)(b), for the words "the profits" there shall be substituted the words "any category of profits".

6. In paragraph 4(1) of Schedule 4 to the Act of 1981, after the word "profits", in paragraph (b) there shall be inserted—
or (bb) the category in which any profits fall";
7. In paragraph 7 of Schedule 4 to the Act of 1981, the following sub-paragraph shall be inserted after subparagraph (1)—
(1A) Without prejudice to the generality of subparagraph (1) above, the duty imposed on the Authority by that sub-paragraph includes the duty to impose, so far as is reasonably practicable, such requirements as will enable the Authority to determine the amounts (if any) which, in relation to any programme contractor, are to be treated as relevant second category income and relevant second category expenditure by virtue, respectively, of sub-paragraphs (3) and (5) of paragraph 2B.
8.—(1) Paragraph 9 of Schedule 4 to the Act of 1981 shall be amended as follows.
(2) In sub-paragraph (1) the following shall be substituted for the definition of subsidiary—
'subsidiary, in relation to any person, means a company in which that person (whether alone or jointly with one or more persons and whether directly or through one or more nominees) holds or is beneficially entitled to 10 per cent. or more of equity share capital, or possess 10 per cent., or more of the voting power".
(3) The following sub-paragraphs shall be added at the end—
(3) For the purposes of this Schedule a person shall be taken to be connected with a programme contractor—

(a) if he is a subsidiary of the contractor;
(b) where the contractor is a company, if he is a person who (whether alone or jointly with one or more persons and whether directly or through one or more nominees) holds or is beneficially entitled to 10 per cent. or more of the equity share capital, or possesses 10 per cent. or more of the voting power; or
(c) where any other person is connected with the contractor concerned by virtue of paragraph (b) above, if he is a company in which that other person (whether alone or jointly with one or more persons and whether directly or through one or more nominees) holds or is beneficially entitled to 10 per cent. or more of the equity share capital, or possesses 10 per cent. or more of the voting power;

but does not include any person whose trade consists wholly or mainly of the distribution of programmes by wireless telegraphy or cable.
(4) Where the same persons falls within more than one category of programme contractor, the definitions of "first category rate" and "second category rate" in section 32(4A) shall not have the effect of applying the lower or lowest rate in respect of all his first category profits or (as the case may be) all of his second category profits but, subject to section 32(6), those profits shall be appointed, and the provisions of this Act applied, is such manner as the Authority consider appropriate with a view to securing that the overall amount payable by him by way of additional payments is, as near as may be, equal to the aggregate of the amounts which would be so payable if there were as many separate programme contractors as there are categories of programme contractor within which he falls.

PART II

TRANSITIONAL PROVISIONS

9.—(1) In this paragraph—
new statutory provisions" means the provisions of the Broadcasting Act 1981 as amended by this Act; and


"existing statutory provisions" means the provisions of that Act as they had effect immediately before the passing of this Act.
(2) Any contract between the Authority and a programme contractor which is in force immediately before the passing of this Act shall, until it is varied or superseded by a further contract between them or expires or is otherwise terminated (whichever first occurs) be deemed to be modified by virtue of this Schedule so as—

(a)to substitute provisions in conformity with the new statutory provisions for so much of the contract as is in accordance with the existing statutory provisions and is not in conformity with the new statutory provisions, and
(b) to incorporate in the contract such additional provisions as a contract between the Authority and a programme contractor is required to include in accordance with new statutory provisions;

and (subject to paragraph 4 of Schedule 4 to this Act of 1981) any provisions of the contract which provide for arbitration as to any matters contained in the contract in accordance with the existing statutory provisions shall be construed as making the like provision for arbitration in relation to matters deemed to be included in the contract by virtue of this subparagraph.
(3) Where is appears to the Authority that the new statutory provisions call for the inclusion of additional terms in any such contract, but do not afford sufficient particulars of what those terms should be, the Authority may, after consulting the programme contractor, decide what those terms are to be.
(4) This paragraph shall not be taken to have effect in relation any contract entered into by a programme contractor and any person other than the Authority before the passing of this Act.
10.—(1) This paragraph applies in relation to any accounting period of a programme contractor which begins before 1st April 1986 and ends after 31st March 1986 ("the accounting period").
(2) The additional payments payable by the programme contractor under section 32 of the Act of 1981 in relation to his profits for the accounting period shall be the aggregate of the following amounts—

(a) the amount payable by him on the assumption—

(i) that section (Broadcasting: additional payments by programme contractors) of this Act was not in force at any time during the accounting period; and
(ii) that his profits for the accounting period was reduced by multiplying them by X/X+Y; and

(b) the amount payable by him on the assumption that that section was in force throughout the accounting period and that both his first category profits for that period and his second category profits for that period were reduced by multiplying them by Y/X+Y;

where (taking any odd four days or more as a week)
X is the number of weeks in the accounting period falling before 1st April 1986; and
Y is the number of weeks in the accounting period falling after 31st March 1986.
(3) For the purposes of the application of paragraph 2C of Schedule 4 to the Act of 1981 in relation to losses incurred by the programme contractor during the accounting period, those losses shall be reduced by multiplying them by X/X+Y where X and Y have the same meaning as in sub-paragraph (2) above.'—[Mr. Giles Shaw.]

Brought up, read the First and Second time, and added to the Bill.

New Clause 26

SECTION 86: SPECIAL CASES

`(1) An instrument on which stamp duty is not chargeable by virtue of—

(a) section 127(1) of the Finance Act 1976 (transfer to stock exchange nominee), or
(b) section 83(1A) or (2) above,

shall be disregarded in construing section 86(4) and (5) above.
(2) Subsection (3) below applies where the chargeable securities mentioned in section 86(1) above are constituted by or transferable by means of an inland bearer instrument, within the meaning of the heading "Bearer Instrument" in Schedule 1 to the Stamp Act 1891, which—

(a) is exempt from stamp duty under that heading by virtue of exemption 3 in that heading, or
(b) would be so exempt if it were otherwise chargeable under that heading.

(3) In such a case section 86 above shall have effect as if the following were omitted—

(a) in subsection (2) the words from "unless" to the end;
(b) subsections (4), (5) and (8).'.—[Mr. Ian Stewart.]

Brought up, and read the First time.

Mr. Ian Stewart: I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker (Mr. Ernest Armstrong): With this it will be convenient to discuss the following: Government new clauses 27 to 30.
New clause 32—Acquisition of target company's share capital—
`(1) Stamp duty under the heading "Conveyance or Transfer on Sale" in Schedule 1 to the Stamp Act 1891 shall not be chargeable for an instrument transferring shares in one company (the target company) to another company (the acquiring company) if the conditions mentioned in subsection (3) below are fulfilled.
(2) An instrument on which stamp duty is not chargeable by virtue only of subsection (1) above shall not be taken to be duly stamped unless it is stamped with the duty to which it would be liable but for that subsection or it has, in accordance with section 12 of the Stamp Act 1891, been stamped with a particular stamp denoting that it is not chargeable with any duty.
(3) The conditions are that—

(a) the registered office of the acquiring company is in the United Kingdom,
(b) the transfer forms part of an arrangement by which the acquiring company acquires the whole of the issued share capital of the target company.
(c) the acquisition is effected for bona fide commercial reasons and does not form part of a scheme or arrangement of which the main purpose, or one of the main purposes, is avoidance of liability to stamp duty, stamp duty reserve tax, income tax, corporation tax or capital gains tax,
(d) the consideration for the acquisition consists only of the issue of shares in the acquiring company to the shareholders of the target company,
(e), after the acquisition has been made, each person who immediately before it was made was a shareholder of the target company is a shareholder of the acquiring company,
(f) after the acquisition has been made, the shares in the acquiring company are of the same classes as were the shares in the target company immediately before the acquisition was made,
(g) after the acquisition has been made, the number of shares of any particular class in the acquiring company bears to all the shares in that company the same proportion as the number of shares of that class in the target company bore to all the shares in that company immediately before the acquisition was made, and
(h) after the acquisition has been made, the proportion of shares of any particular class in the acquiring company held by arty particular shareholder is the


same as the proportion of shares of that class in the target company held by him immediately before the acquisition was made.

(4) In this section references to shares and to share capital include references to stock.
(5) This section applies to any instrument executed on or after 1st August 1986.'.
Government amendments Nos. 179 to 182 and 189.

Dr. Oonagh McDonald: The new clauses are designed to ensure that where a transaction is exempt from stamp duty it is also exempt from stamp duty reserve tax. Perhaps the Minister will confirm that.
The new clauses and amendments do nothing more than rectify obvious omissions from the original provisions. However, the new clauses are among over 40 new clauses and amendments to the part of the Finance Bill that deals with stamp duty. In debating this part of the Finance Bill in Committee we also dealt with many new clauses and amendments to the Government's original proposals. This is the Government's third or fourth attempt to set out their objectives in changing stamp duty and stamp duty reserve tax.
It is a disgrace that the Bill has been so badly drafted. The Minister seems to have some kind of parliamentary record for the number of new clauses and amendments to Bills, or to parts of Bills, for which he has been responsible. As one example of this I divert temporarily to cite the Building Societies Bill. The Minister must have the all-time record for the number of times that he changes his mind —or his officials change their minds—and drafts and redrafts to fill up holes, add explanations and deal with omissions from the various Bills for which he has been responsible.
In the Finance Bill we are deluged with amendments and new clauses from the Minister. It is time that he learnt how to decide what he wants and to get it right in the first place. Legislation as poor as this should not go through the House time after time. There is no guarantee that the Minister has got this particular set of amendments and new clauses right. Perhaps he will comment on what I have said.

Mr. Rhodes James: Unlike the last new schedule, new clause 32 has the merit of being comprehensible and written in the English language. There are no Xs and Ys. The clause seeks to provide exemption from ad valorem stamp duty for certain types of company reorganisation falling within the scope of the exemption provided by clause 75, but apparently not falling within the terms of the exemption provided.
The Bill provides a much needed reduction from 1 to 0·5 per cent. in the rate of stamp duty on share transfers. The cost of the reduction is covered in part by the withdrawal of exemptions for takeovers, schemes of reconstruction, amalgamation and demergers.
Clause 75 provides for an exemption to continue to be given for schemes of reconstruction where there is no real change of ownership. The exemption is restricted to reconstruction which involves the transfer of
the whole or part of an undertaking
from one company to another. It is a condition of the exemption that the consideration for the acquisition of the

undertaking must consist of, or include, the issue of shares in the acquiring company to all the shareholders of the company whose undertaking is being acquired.
The exemption in clause 75, which I welcome, could apply where the reorganisation involves a transfer of a trading subsidiary from one group member to another, provided the consideration consists of shares and the shares are issued to the shareholders of the target company. They cannot be issued to the target company itself. There is, therefore, no exemption where a group wishes to restructure itself and to put a new holding company on top of the existing group. In this situation the acquiring company would need to issue shares to the target company and not to the shareholders of the target company.
This problem first came to my attention when a company in my constituency tried to make itself more efficient by planning a reorganisation to involve the creation of a new holding company. No change in ownership of the group was involved. Before the Budget introduced by my right hon. Friend the Chancellor of the Exchequer the reorganisation would have been exempted from stamp duty under the provisions of section 55 of the Finance Act 1927, when Mr. Winston Churchill was Chancellor. The group had obtained the necessary clearances from the Revenue to carry out the proposed reorganisation. The Revenue accepted that the reorganisation was for genuine commercial reasons and that there was no question of tax avoidance.
I am a layman in such matters, although after my experience of the new schedule I may become more interested in them. To me, as a layman, the reorganisation seemed to be precisely what my right hon. Friend the Chancellor of the Exchequer had in mind when he announced that an exemption was being preserved for reconstructions. However, the case — there are many others—does not fall within the terms of exemption provided by clause 75.
The House may reasonably ask why the group could not modify the reconstruction so as to bring itself within the terms of the exemption provided by clause 75. Transferring a business from the ownership of one corporate organisation to another is not, however, a simple matter. Contracts of employment may well have to be renegotiated with unions and employees. Contracts with customers may also have to be renegotiated. Transferring a business from one company into a group may present accounting problems, because trading entities could be separated from reserves held or liabilities incurred in connection with the business. It can also affect the date on which corporation tax is paid. Where the reorganisation otherwise meets the conditions set out in clause 75, it seems not unreasonable that in those cases there should be a stamp duty exemption.
As I said, a particular constituency case brought this problem to my attention. My new clause 32 would meet a much wider problem, which perhaps was not foreseen when the Finance Bill was originally introduced, and I hope that my hon. Friend the Economic Secretary will look benignly on it.

The Economic Secretary to the Treasury (Mr. Ian Stewart): The hon. Member for Thurrock (Dr. McDonald) is correct in her interpretation that the


exemptions for stamp duty also apply to stamp duty reserve tax. As usual, she has done her homework efficiently and I compliment her on that.
My hon. Friend the Member for Cambridge (Mr. Rhodes James) has raised a most interesting point in new clause 32. I congratulate him on the way in which he has explained the problem. It is not necessary for me to add to what he said in explanation of his new clause.
Clause 75, which deals with reconstructions, does not take into account the possibility of placing a holding company over the top of an existing group. We think, like my hon. Friend, that that is a legitimate extension of the spirit of clause 75 and that in certain practical cases, rather like the one that he has drawn to our attention, representing a company in his constituency, it is something for which the Bill should cater.
Usually the problem with this sort of proposal is one of drafting, but my hon. Friend shrewdly decided that it would be sensible if he and the company concerned were to contact my officials and those in the Revenue to see whether it could be put into wording which would satisfactorily deal with the problem. I am glad to say that that has been possible.
Therefore, I had to try out my hon. Friend's new clause on three further grounds. First, did it contain any algebra? It passed that test. Secondly, did it contain any reference to 1 April? It passed that test too. Thirdly, did it come up to the literary style that we expect from my hon. Friend the Member for Cambridge? Relatively speaking, considering the subject, it probably passes that test, and, therefore, I recommend the House to accept it.

Dr. McDonald: In that case, the hon. Gentleman should ask the hon. Member for Cambridge (Mr. Rhodes James) to write all his clauses and amendments for him.

Mr. Stewart: That is an interesting suggestion, and it enables me to come to the third point with which I want to deal. The hon. Lady complained that there were a considerable number of new clauses and amendments on stamp duty. They represent not only some changes of substance — although relatively small changes of substance, considering the number of amendments to which they have given rise—but show the difficulty of expressing provisions on stamp duty in a simple form which are internally consistent. I defend myself. I am slightly caught between my hon. and elegant Friend from the university, who wants to have everything rewritten in the clearest possible way, and the hon. Lady, who chides me for having these new clauses and amendments on the Amendment Paper.
New clauses 26, 27 and 28 are no more than a slightly tidier rearrangement of provisions which are already in the Bill in clause 87, and that is why one of the amendments omits clause 87. We do our best to try to strike a balance between the conflicting desires of the House. I am sorry that that adds to the material that the hon. Lady, and, I might say, I, have to deal with.
As I said in Committee, I thought that I had drawn the short ministerial straw when I found myself dealing with the stamp duty clauses, and the hon. Lady drew the short Opposition straw in being allocated this wicked subject. I conclude by complimenting her on the way in which she has dealt with these confusing and highly technical matters, not only in Committee, but on Report.
I can plead that, more than most of the measures in the group, these are designed to simplify the Bill and make it easier to understand and use. I hope that in that spirit the hon. Lady will find the group acceptable.

Mr. Rhodes James: With the leave of the House, I should like to express my profound gratitude to my hon. Friend and his officials over this matter. It was a complicated one, which has been satisfactorily resolved, and I and my constituent and many others are grateful.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 27

SECTION 86: EXCEPTIONS FOR MARKET MAKERS ETC.

`(1) Section 86 above shall not apply as regards an agreement to transfer securities if the agreement is made by B in the ordinary course of his business as a market maker in securities of the kind concerned.
(2) Section 86 above shall not apply as regards an agreement to transfer securities to B or his nominee if—

(a) the agreement is made by B as principal in the ordinary course of his business as a broker and dealer in relation to securities of the kind concerned and
(b) before the end of the period of 7 days beginning with the day on which the agreement is made or (in a case where the agreement is conditional) the day on which the condition is satisfied, B enters into an unconditional agreement to sell the securities to another person.

(3) For the purposes of this section, a person is a market maker in securities of a particular kind if he—

(a) holds himself out at all normal times in compliance with the rules of the Stock Exchange as willing to buy and sell securities of that kind at a price specified by him, and
(b) is recognised as doing, so by the Council of the Stock Exchange.

(4) For the purposes of this section, a person is a broker and dealer in relation to securities of a particular kind if he is a member of the Stock Exchange who carries on his business in the United Kingdom and is not a market maker in securities of that kind.
(5) The Treasury may by regulations provide that for subsection (3) above (as it has effect for the time being) there shall be substituted a subsection containing a different definition of a market maker for the purposes of this section.
(6) The Treasury may by regulations provide that for subsection (4) above (as it has effect for the time being) there shall be substituted a subsection containing a different definition of a broker and dealer for the purposes of this section.
(7) For the purposes of subsection (2) above, if the securities which B sells cannot be identified (apart from this subsection) securities shall be taken as follows—

(a) securities of the same kind acquired in the period of 7 days ending with the day of the sale (and not taken for the purposes of a previous sale by B) shall be takenbefore securities of that kind acquired outside that period;
(b) securities of that kind acquired earlier in that period (and not taken for the purposes of a previous sale by B) shall be taken before securities of that kind acquired later in that period.

(8) For the purposes of subsection (7) above—

(a) securities are acquired when B enters into an agreement for them to be transferred to 13 or his nominee or (in a case where the agreement is conditional) when the condition is satisfied;
(b) B sells securities when he enters into an unconditional agreement to sell them to another person.



(9) The power to make regulations under this section shall be exercisable by statutory instrument subject to annulment in pursuance of a resolution of the House of Commons.'.— [Mr. Ian Stewart.]

Brought up, read the First and Second time, and added to the Bill.

New Clause 28

SECTION 86: OTHER EXCEPTIONS

'.—(1) Section 86 above shall not apply as regards an agreement to transfer a unit under a unit trust scheme to the managers under the scheme.
(2) Section 86 above shall not apply as regards an agreement to transfer a unit under a unit trust scheme if at the time the agreement is made—

(a) all the trustees under the scheme are resident outside the United Kingdom, and
(b) the unit is not registered in a register kept in the United Kingdom by or on behalf of the trustees under the scheme.

(3) Section 86 above shall not apply as regards an agreement to transfer securities constituted by or transferable by means of—

(a) an overseas bearer instrument, within the meaning of the heading "Bearer Instrument" in Schedule 1 to the Stamp Act 1891;
(b) an inland bearer instrument, within the meaning of that heading, which does not fall within exemption 3 in that heading (renounceable letter of allotment etc. where rights are renounceable not later than six months after issue).

(4) Section 86 above shall not apply as regards an agreement which forms part of an arrangement falling within section 90(1) or 92(1) below.
(5) Section 86 above shall not apply as regards an agreement to transfer securities which the Board are satisfied are held, when the agreement is made, by a person whose business is exclusively that of holding chargeable securities—

(a) as nominee or agent for a person whose business is or includes the provision of clearance services for the purchase and sale of chargeable securities, and
(b) for the purposes of such part of the business mentioned in paragraph (a) above as consists of the provision of such clearance services (in a case where the business does not consist exclusively of that).'. —[Mr. Ian Stewart.]

Brought up, read the First and Second time, and added to the Bill.

New clause 29

DEPOSITORY RECEIPTS: STAMP DUTY RESERVE TAX: EXCEPTIONS

`(1) Where securities are transferred—

(a) to a company which at the time of the transfer falls within subsection (5) of section 67 above and is resident in the United Kingdom, and
(b) from a company which at that time falls within that subsection and is so resident,

there is shall be no charge to tax under section 90 above in respect of the transfer.
(2) There shall be no charge to tax under section 90 above in respect of a transfer, issue or appropriation of an inland bearer instrument, within the meaning of the heading "Bearer Instrument" in Schedule 1 to the Stamp Act 1891, which does not fall within exemption 3 in that heading (renounceable letter of allotment etc. where rights are renounceable not later than six months after issue).
(3) There shall be no charge to tax under section 90 above in respect of an issue by a company (company X) of securities in exchange for shares in another company (company Y) where company X—


(a) has control of company Y, or
(b) will have such control in consequence of the exchange or of an offer as a result of which the exchange is made.

(4) For the purposes of subsection (3) above company X has control of company Y if company X has power to control company Y's affairs by virtue of holding shares in, or possessing voting power in relation to, company Y or any other body corporate:.—[Mr. Ian Stewart.]

Brought up, read the First and Second time, and added to the Bill.

New clause 30

CLEARANCE SERVICES: STAMP DUTY RESERVE TAX: EXCEPTIONS

`(1) Where securities are transferred—

(a) to a company which at the time of the transfer falls within subsection (5) of section 70 above and is resident in the United Kingdom, and
(b) from a company which at that time falls within that subsection and is so resident, there shall he no charge to tax under section 92 above in respect of the transfer.

(2) There shall he no charge to tax under section 92 above in respect of a transfer affected by an instrument on which stamp duty is not chargeable by virtue of—

(a) section 127(1) of the Finance Act 1976 (transfer to stock exchange nominee), or
(b) section 83(1A) or (2) above.

(3) There shall be no charge to tax under section 92 above in respect of a transfer or issue of an inland bearer instrument, within the meaning of the heading "Bearer Instrument" in Schedule 1 to the Stamp Act 1891, which does not fall wihin exemption 3 in that heading (renounceable letter of allotment etc. where rights are renounceable not later than six months after issue).
(4) There shall be no charge to tax under section 92 above in respect of an issue by a company (company X) of securities in exchange of shares in another company (company Y) where company X—

(a) has control of company Y, or
(b) will have such control in consequence of the exchange or of an offer as a result of which the exchange is made.

(5) For the purposes of subsection (4) above company X has control of company Y if company X has power to control company Y's affairs by virtue of holding shares in, or possessing voting power in relation to, company Y or any other body corporate.'.—[Mr. Ian Stewart.]

Brought up, read the First and Second time, and added to the Bill.

New Clause 32

ACQUISITION OF TARGET COMPANY'S SHARE CAPITAL

`(1) Stamp duty under the heading "Conveyance or Transfer on Sale" in Schedule 1 to the Stamp Act 1891 shall not be chargeable for an instrument transferring shares in one company (the target company) to another company (the acquiring company) if the conditions mentioned in subsection (3) below are fulfilled.
(2) An instrument on which stamp duty is not chargeable by virtue only of subsection (1) above shall not be taken to be duly stamped unless it is stamped with the duty to which it would be liable but for that subsection or it has, in accordance with section 12 of the Stamp Act 1891, been stamped with a particular stamp denoting that it is not chargeable with any duty.
(3) The conditions are that—

(a) the registered office of the acquiring company is in the United Kingdom,
(b) the transfer forms part of an arrangement by which the acquiring company acquires the whole of the issued share capital of the target company,
(c) the acquisition is effected for bona fide commercial reasons and does not form part of a scheme or


arrangement of which the main purpose, or one of the main purposes, is avoidance of liability to stamp duty, stamp duty reserve tax, income tax, corporation tax or capital gains tax,
(d) the consideration for the acquisition consists only of the issue of shares in the acquiring company to the shareholders of the target company,
(e) after the acquisition has been made, each person who immediately before it was made was a shareholder of the target company is a shareholder of the acquiring company,
(f) after the acquisition has been made, the shares in the acquiring company are of the same classes as were the shares in the target company immediately before the acquisition was made.
(g) after the acquisition has been made, the number of shares of any particular class in the acquiring company bears to all the shares in that company the same proportion as the number of shares of that class in the target company bore to all the shares in that company immediately before the acquisition was made, and
(h) after the acquisition has been made, the proportion of shares of any particular class in the acquiring company held by any particular shareholder is the same as the proportion of shares of that class in the target company held by him immediately before the acquisition was made.

(4) In this section references to shares and to share capital include references to stock.
(5) This section applies to any instrument executed on or after 1st August 1986.—[Mr. Rhodes James.]

Brought up, read the' First and Second time, and added to the Bill.

Clause 67

DEPOSITARY RECEIPTS

Mr. Ian Stewart: I beg to move amendment No. 148, in page 59, line 27, leave out 'registered' and insert 'incorporated'.

Mr. Deputy Speaker: With this it will be convenient to take Government amendments Nos. 205, 206, 150, 207, 151 to 155, 208, 156, 159, 160, 209, 210, 210, 162, 162, 244, 165 to 170, 211, 184, 215, 186, 216 to 220, 191, 221, 194 to 198, 222 and 223.

Dr. McDonald: Amendments Nos. 148 to 200 correct drafting errors in the stamp duty provisions and clarify the text. However, other amendments are a little more puzzling. Amendments Nos. 205 to 224, which were tabled on 10 July, deal with securities issued or sold partly paid.
It appears from inquiries made that those amendments all concern the 1·5 per cent. stamp duty charge imposed when securities are converted into depositary receipts—A DRs — or are placed in a clearing system. The amendments arc designed to ensure that if the securities are paid for by instalmnts, the 1·5 per cent. duty is also paid in instalments, or, at least, that is the description that I obtained when I made inquiries about the meaning of the amendments. However, neither I, nor any tax experts whom I consulted, can understand how the amendments achieve the result which was explained to me and to others by the Inland Revenue from whom I made inquiries.
In commenting on this group of amendments, I hope that the Minister will explain how exactly they achieve the purpose that they are alleged to achieve by the Inland Revenue. It is completely and utterly mystifying to me and to those whom I have consulted. It may all be clear to the Minister. I hope that it is. If so, perhaps he will tell us. If

it is not, I suggest that he is suffering from enormous difficulties because, unlike the procedure on other Bills.. he will not be able to add another 200 or so amendments in the other place to be considered at some future date here. Therefore, I hope that the hon. Gentleman has an adequate and clear explanation of how this group of amendments achieves the purpose which, according to the Inland Revenue, it is supposed to have.
It may be that the amendments do not have that purpose at all, but, if so, what purpose do they have? I regret to say that the amendments do not seem to clarify the situation, but rather muddy the waters still further. No doubt that will cause great headaches for those outside when they seek to apply them to their financial dealings.

Mr. Ian Stewart: The hon. Member for Thurrock (Dr. McDonald) gives me an invitation which I cannot resist, which is to comment at greater length on those amendments that deal with payment by instalment. I shall discuss the relevant amendments which, as the hon. Lady said, are most of the amendments Nos. 205 to 224 I shall begin with amendments Nos. 205, 206, and 207.
When shares are sold and the price is payable by instalment, the vendor may be unwilling to transfer the share certificates to the purchaser until the final instalment payment has been made. In those circumstances, a third party, normally a custodian bank, will hold the shares until the purchase price is fully paid and then provide the purchaser with an interim or substitute certificate which can be bought and sold on the stock exchange in the normal way.
The possibility of a double charge in this case arises because the terms of the instalment arrangement involve the deposit with a depositary bank of different documents of title at different times. When the interim certificate is deposited, a 1·5 per cent. stamp duty or reserve tax charge results which will be based either on the instalment paid on the issue of the interim certificate or on the price paid for the certificate, depending on whether the depositary receipt holder was an original subscriber for the shares sold, or whether he bought the certificates in the market.
Amendment No. 208 follows on from that. It is a further amendment to clarify the application of clause 67 where securities are sold under instalment — an arrangement which provides for an interim certificate to be issued to the person buying the securities. That amendment is necessary because an interim certificate attracts stamp duty on transfer and it would be wrong for it to be treated as a depositary receipt. Doubts have been expressed about whether the definition of a depositary receipt provided in clause 69 could arguably apply to interim certificates of the type issued in connection with an instalment sale. The amendment is intended to make it clear that the definition does not apply to interim certificates.
Amendments Nos. 209 and 210 are the clearance services equivalent of amendments Nos. 205 to 207. The hon. Lady will remember that parallel provisions for clearance services and A DRs were necessary. Those amendments merely provide the equivalent for clearance services.
Amendments Nos. 211 to 214 deal with the reserve tax equivalent of what is provided on stamp duty in amendments Nos. 205 to 207. That is the other variation on the theme. Amendment No. 216 provides the stamp duty reserve tax equivalent only as applied to clearance


services. Those are the various combinations of ADRs, or rather depositary receipts or clearance services and stamp duty or stamp duty reserve tax.
Amendments Nos. 217 to 220 provide the reserve tax equivalent of amendments Nos. 209 to 210, which is the clearance services provision for stamp duty. All those amendments hang together. They are followed by amendment No. 223 which is concerned only with definitions.
Amendments Nos. 184 and 215 were also mentioned. The hon. Lady mentioned the payment of the duty or the tax by instalment as well as the payment for shares by instalment. Those two amendments deal especially with that provision. First, they provide for the recovery of the 1·5 per cent. reserve tax charge under clause 92, where the depositary bank is not resident in the United Kingdom and has no branch or agency here. In those circumstances, the proposed new subsection (5A) will provide for the person to whom the shares are transferred, that is the bank's nominee company, to be liable.
Secondly, the amendments deal with the liability arising where the securities deposited are interim certificates issued in connection with the sale of shares under instalment arrangements. The amendment clarifies the application of the clause in those circumstances by making it clear that the charge arises on each instalment as it becomes payable, and that it does not arise on the entire sale price at the outset when the interim certificate is first deposited.
5.45 pm
Where shares are sold under instalment arrangements that involve the purchaser acquiring for a time an interim certificate rather than the underlying shares, it was, of course, always intended that clause 90 should apply to each instalment separately. Doubts have been expressed about whether clause 90, as it stands, has that effect in practice. Therefore, the new subsection is intended to make the position absolutely clear.
The amendments deal partly with the point raised by the hon. Lady and partly with the point about the holding of an interim certificate in the United Kingdom not for ordinary deposit receipt purposes. I hope that, for the sake of the hon. Lady, and for the sake of putting the reasons on the record, it has been helpful for me to comment on the points that she raised.

Amendment agreed to.

Amendments made: No. 205, in page 59, line 40 leave out 'subsection (4)' and insert 'subsections (4) and (4A)'.

No. 149, in page 60 leave out lines 3 to 9 and insert—

`(a) at the time of the transfer the transferor is a qualified dealer in securities of the kind concerned or a nominee of such a qualified dealer,
(b) the transfer is made for the purposes of the dealer's business,
(c) at the time of the transfer the dealer is not a market maker in securities of the kind concerned, and
(d) the instrument contains a statement that paragraphs (a) to (c) above are fulfilled.'.

No. 206, in page 60, line 9 at end insert—
'(4A) In a case where—

(a) securities are issued, or securities sold are transferred, and (in either case) they are to be paid for in instalments,
(b) the person to whom they are issued or transferred holds them and transfers them to another person when the last instalment is paid,

(c) the transfer to the other person is effected by an instrument in the case of which subsection (3) above applies,
(d) before the execution of the instrument mentioned in paragraph (c) above an instrument is received by a person falling (at the time of the receipt) within subsection (5), (6), or (7) below,
(e) the instrument so received evidences all the rights which (by virtue of the terms under which the securities are issued or sold as mentioned in paragraph (a) above) subsist in respect of them at the time of the receipt, and
(f) the instrument mentioned in paragraph (c) above contains a statement that paragraphs (a), (b) and (e) above, are fulfilled,

subsection (3) above shall have effect as if the reference to the value there mentioned were to an amount (if any) equal to the total of the instalments payable, less those paid before the transfer to the other person is effected.'

No. 150, in page 60, line 37 leave out 'registered' and insert 'incorporated'.

No. 207, in page 60, line 43, leave out '(4)' and insert `(4A)'. —[Mr. Ian Stewart.]

Clause 68

DEPOSITARY RECEIPTS: NOTIFICATION

Amendments made: No. 151, in page 61, line 6, after `securities', insert
`of a company incorporated in the United Kingdom'.
No. 152, in page 61, line 11, leave out from 'securities' to 'shall' in line 12 and insert
`(being securities of a company incorporated in the United Kingdom)—

(a) as nominee or agent for a person whose business is or includes issuing depositary receipts for relevant securities, and
(b) for the purposes of such part of the business mentioned in pargraph (a) above as consists of issuing such depositary receipts (in a case where the business does not consist exclusively of that),'.

No. 153, in page 61, line 14, after 'holds', insert 'such'.

No. 154, in page 61, line 15, at end insert 'and for such purposes'.

No. 155, in page 61, line 16, after 'which' insert
`is incorporated in the United Kingdom and'.— [Mr. Ian Stewart.]

Clause 69

DEPOSITARY RECEIPTS: SUPPLEMENTARY

Amendments made: No. 208, in page 61, line 37, after (b) insert—
'except that for those purposes a depositary receipt for relevant securities does not include an instrument acknowledging rights in or in relation to securities if they are issued or sold under terms providing for payment in instalments and for the issue of the instrument as evidence that an instalment has been paid.'

No. 156, in page 62, line 2, leave out 'registered' and insert 'incorporated'.

No. 157, in page 62, line 12, at end insert—
'(5A) For the purposes of section 67(4) above a person is a qualified dealer in securities of a particular kind if he deals in securities of that kind and—

(a) is a member of a recognised stock exchange (within the meaning given by section 535 of the Taxes Act), or
(b) is designated a qualified dealer by order made by the Treasury.'

No. 158, in page 62, line 25 after 'regulations', insert 'or an order'.—[Mr. Ian Stewart.]

Clause 70

CLEARANCE SERVICES

Amendments made: No. 159, in page 62, line 29 at beginning insert
Subject to subsection (7A) below,'.
No. 160, in page 62, line 31, leave out 'registered' and insert 'incorporated'.
No. 209, in page 63, line 1, leave out 'subsection (4)' and insert 'subsections (4) and (4A)'.
No. 161, in page 63, leave out lines 6 to 12 and insert—

'(a) at the time of the transfer the transferor is a qualified dealer in securities of the kind concerned or a nominee of such a qualified dealer,
(b) the transfer is made for the purposes of the dealer's business,
(c) at the time of the transfer the dealer is not a market maker in securities of the kind concerned, and
(d) the instrument contains a statement that paragraphs a) to (c) above are fulfilled.'.

No. 210, in page 63, line 12, at end insert—
'(4A) In a case where—

(a) securities are issued, or securities sold are transferred, and (in either case) they are to be paid for in instalments,
(b) the person to whom they are issued or transferred holds them and transfers them to another person when the last instalment is paid,
(c) the transfer to the other person is effected by an instrument in the case of which subsection (3) above applies,
(d) before the execution of the instrument mentioned in paragraph (c) above an instrument is received by a person falling (at the time of the receipt) within subsection (5), (6) or (7) below,
(e) the instrument so received evidences all the rights which (by virtue of the terms under which the securities are issued or sold as mentioned in paragraph (a) above) subsist in respect of them at the time of the receipt, and
(f) the instrument mentioned in paragraph (c) above contains a statement that paragraphs (a), (b) and (e) above are fulfilled,

subsection (3) above shall have effect as if the reference to the value there mentioned were to an amount (if any) equal to the total of the instalments payable, less those paid before the transfer to the other person is effected.'.

No. 162, in page 63, line 29, leave out 'and'.

No. 163, in page 63, line 33, at end insert
`and
(c) he holds relevant securities as nominee or agent for such a person, for the purposes of such part of that person's business as consists of the provision of clearance services for the purchase and sale of relevant securities (in a case where that business does not consist exclusively of that).'.

No. 224, in page 63, line 33, at end insert—
`(7A) Where an instrument transfers relevant securities of a company incorporated in the United Kingdom—

(a) to a company which at the time of the transfer falls within subsection (5) above and is resident in the United Kingdom, and
(b) from a company which at that time falls within that subsection and is so resident.

subsections (2) to (4A) above shall not apply and the maximum stamp duty chargeable on the instrument shall be 50p.'—[Mr. Ian Stewart.]

Clause 71

CLEARANCE SERVICES: NOTIFICATION

Amendments made: No. 165, in page 63, line 40, after 'securities', insert
`of a company incorporated in the United Kingdom'.

No. 166, in page 64, line 2, leave out from 'securities' to 'shall' in line 3 and insert
'(being securities of a company incorporated in the United Kingdom)—

(a) as nominee or agent for a person whose business is or includes the provision of clearance services for the purchase and sale of relevant securities, and
(b) for the purposes of such part of the business mentioned in paragraph (a) above as consists of the provision of such clearance services (in a case where the business does not consist exclusively of that),'.

No. 167, in page 64, line 5, after 'holds', insert 'such'.

No. 168, in page 64, line 6, at end insert 'and for such purposes'.

No. 169, in page 64, line 7, after 'which', insert
'is incorporated in the United Kingdom and'.—[Mr. Ian Stewart.]

Clause 72

CLEARANCE SERVICES: SUPPLEMENTARY

Amendments made: No. 170, in page 64, line 22, leave out 'registered', and insert 'incorporated'.
No. 171, in page 64, line 33 leave out from 'above' to second 'at' in line 34 and insert
' "qualified dealer" and "market maker" have at any particular time the same meanings as they have'.—[Mr. Ian Stewart.]

Clause 74

RECONSTRUCTIONS ETC: REPEALS

Amendment made: No. 172, in page 67, line 18, after 'executed', insert
`in pursuance of a contract made'.—[Mr. Ian Stewart.]

Clause 83

MISCELLANEOUS EXEMPTIONS

Amendments made: No. 173, in page 75, line 34, at end insert—
' (1A) Stamp duty shall not be chargeable on an instrument effecting a transfer of stock if—

(a) the transferee is a recognised investment exchange or a nominee of a recognised investment exchange, and
(b) an agreement which relates to the stamp duty which would (apart from this subsection) be chargeable on the instrument, and was made between the Commissioners and the investment exchange under section 33 of the Finance Act 1970, is in force at the time of the transfer.'.

No. 174, in page 76, line 3 at end insert—
'(3A) Subsection (1A) above applies to any instrument giving effect to a transaction carried out on or after such day as the Commissioners may appoint by order made by statutory instrument.'.—[Mr. Ian Stewart.]

Clause 84

SUPPLEMENTARY

Amendment made: No. 175, in page 76, line 37, at end insert—
'(aa) references to a recognised investment exchange are to a recognised investment exchange within the meaning of the Financial Services Act 1986,'.—[Mr. Ian Stewart.]

Clause 86

THE PRINCIPAL CHARGE

Amendments made: No. 177, in page 77, line 13, leave out 'one' and insert 'a'.
No. 178, in page 77, line 16, leave out subsection (2) and insert—
' (2) There shall be a charge to stamp duty reserve tax under this section on the expiry of the period of two months beginning with the relevant day, unless the agreement is to transfer the securities to B or his nominee and the first and second conditions mentioned below have been fulfilled by the time that period expires.'.

No. 179, in page 78, line 10, at end insert—
' (10) This section has effect subject to sections (Section 86: special cases), (Section 86: exceptions for market makers etc.) and (Section 86: other exceptions) below'.—[Mr. Ian Stewart.]

Clause 87

SECTION 86: EXCEPTIONS AND SPECIAL CASES

Amendment made: No. 180, in page 78, line 11, leave out clause 87.—[Mr. Ian Stewart.]

Clause 90

DEPOSITARY RECEIPTS

Amendments made: No. 181, in page 79, line 23, leave out 'subsections (4) and (7)' and insert
'subsection (7) below and section (Depositary receipts: stamp duty reserve tax: exceptions)'.
No. 182, in page 79, line 39, leave out subsection (4).
No. 211, in page 80, line 5, leave out 'and' and insert `to'.
No. 183, in page 80, leave out lines 15 to 24 and insert—

'(a) the transfer is effected by an instrument on which stamp duty under the heading "Conveyance or Transfer of any kind not hereinbefore described" in Schedule 1 to the Stamp Act 1891 is chargeable,
(b) at the time of the transer the transferor is a qualified dealer in securities of the kind concerned or a nominee of such a qualified dealer,
(c) the transfer is made for the purposes of the dealer's business,
(d) at the time of the transfer the dealer is not a market maker in securities of the kind concerned, and
(e) the instrument contains a statement that paragraphs (b) to (d) above are fulfilled.'.

No. 212, in page 80, line 27, at end insert—
'(6A) In a case where—

(a) securities are issued, or securities sold are transferred, and (in either case) they are to be paid for in instalments,
(b) the person to whom they are issued or transferred holds them and transfers them to another person when the last instalment is paid,
(c) subsection (5)(c) above applies in the case of the transfer to the other person,
(d) before the making of the transfer to the other person an instrument is received by a person falling within subsection (3) above.
(e) the instrument so received evidences all the rights which (by virtue of the terms under which the securities are issued or sold as mentioned in paragraph (a) above) subsist in respect of them at the time of the receipt, and
(f) the transfer to the other person is effected by an instrument containing a statement that paragraphs (a), (b) and (e) above are fulfilled,

subsection (5)(c) above shall have effect as if the reference to the value there mentioned were to an

amount (if any) equal to the total of the instalments payable, less those paid before the transfer to the other person is effected.'.

No. 213, in page 80, line 33, leave out 'and (6)' and insert `to (6A)'.

No. 214, in page 80, line 38, after 'under', insert 'the preceding provisions of'.

No. 184, in page 80, line 38, leave out from 'person' to end of line 40 and insert
'liable for the tax shall (subject to subsection (8A) below) be the person who has issued or is to issue the depositary receipt.'.

No. 215, in page 80, line 40, at end insert—
'(8A) Where tax is charged under the preceding provisions of this section in a case where securities are transferred, and at the time of the transfer the person who has issued or is to issue the depositary receipt is not resident in the United Kingdom and has no branch or agency in the United Kingdom, the person liable for the tax shall be the person to whom the securities are transferred.
(8B) Where chargeable securities are issued or transferred on sale under terms providing for payment in instalments and for an issue of other chargeable securities, and (apart from this subsection) tax would be charged under this section in respect of that issue, tax shall not be so charged, but—

(a) if any of the instalments becomes payable by a person falling within subsection (2) or (3) above, there shall be a charge to stamp duty reserve tax under this section when the instalment becomes payable;
(b) the charge shall be at the rate of 1·50 for every 100 or part of £100 of the instalment payable;
(c) the person liable to pay the instalment shall be liable for the tax.'.

No. 186, in page 81, line 6, leave out
`issued on or before that date'
and insert
'(whether issued on or before that date or to be issued after that date).'.—[Mr. Ian Stewart.]

Clause 91

DEPOSITARY RECEIPTS: SUPPLEMENTARY

Amendments made: No. 216, page 81, line 16, after paragraph (b) insert—
`except that for those purposes a depositary receipt for chargeable securities does not include an instrument acknowledging rights in or in relation to securities if they are issued or sold under terms providing for payment in instalments and for the issue of the instrument as evidence that an instalment has been paid.'.

No. 187, in page 81, line 28, at end insert—
'(4A) For the purposes of section 90(6) above a person is a qualified dealer in securities of a particular kind if he deals in securities of that kind and—

(a) is a member of a recognised stock exchange (within the meaning given by section 535 of the Taxes Act), or
(b) is designated a qualified dealer by order made by the Treasury.'.

No. 188, in page 82, line 1, after 'regulations', insert 'or an order'.—[Mr. Ian Stewart.]

Clause 92

CLEARANCE SERVICES

Amendments made: No. 189, in page 82, line 4, after 'below', insert
'and section
(Clearance services: stamp duty reserve tax: exceptions) below'.

No. 217, in page 82, line 14, leave out 'and' and insert `to'.

No. 190, in page 82, leave out lines 24 to 33 and insert—



(a) the transfer is effected by an instrument on which stamp duty under the heading "Conveyance or Transfer of any kind not hereinbefore described" in Schedule I to the Stamp Act 1891 is chargeable,
(b) at the time of the transfer the transferor is a qualified dealer in securities of the kind concerned or a nominee of such a qualified dealer,
(c) the transfer is made for the purposes of the dealer's business,
(d) at the time of the transfer the dealer is not a market maker in securities of the kind concerned, and
(e) the instrument contains a statement that paragraphs (b) to (d) above are fulfilled.'.

No. 218, in page 82, line 36, at end insert—
'(3A) In a case where—

(a) securities are issued, or securities sold are transferred, and (in either case) they are to be paid for in instalments.
(b) the person to whom they are issued or transferred holds them and transfers them to another person when the last instalment is paid,
(c) subsection (2)(c) above applies in the case of the transfer to the other person,
(d) before the making of the transfer to the other person an instrument is received by A or a person whose business is or includes holding chargeable securities as nominee for A,
(e) the instrument so received evidences all the rights which (by virtue of the terms under which the securities are issued or sold as mentioned in paragraph (a) above) subsist in respect of them at the time of the receipt, and
(f) the transfer to the other person is effected by an instrument containing a statement that paragraphs (a), (b) and (e) above are fulfilled,

subsection (2)(c) above shall have effect as if the reference to the value there mentioned were to an amount (if any) equal to the total of the instalments payable, less those paid before the transfer to the other person is effected.'.

No. 219, in page 82, line 42, leave out 'and (3)' and insert `to (3A)'.

No. 220, in page 83, line 3, after 'under' insert 'the preceding provisions of'.

No. 191, in page 83, line 4, after 'shall', insert
'(subject to subsection (5A) below)'.

No. 221, in page 83, line 4, at end insert—
`(5A) Where tax is charged under the preceding provisions of this section in a case where securities are transferred to a person other than A, and at the time of transfer A is not resident in the United Kingdom and had no branch or agency in the United Kingdom, the person liable for the tax shall be the person to whom the securities are transferred.
(5B) Where chargeable securities are issued or transferred on sale under terms providing for payment in instalments and for an issue of other chargeable securities, and (apart from this subsection) tax would be charged under this section in respect of that issue, tax shall not be so charged but—

(a) if any of the instalments becomes payable by A or by a person whose business is or includes holding chargeable securitee as nominies for A, there shall he a charge to stamp duty reserve tax under this section when the instalment becomes payable;
(b) the charge shall be at the rate of £1·50 for every £100 or part of £100 of the instalment payable;
(c) the person liable to pay the instalment shall be liable for the tax.'.

No. 193, in page 83, line 13, leave out from 'above' to second 'at' in line 14 and insert
'"qualified dealer" and "market maker" have at any particular time the same meanings as they have'.

No. 194, in page 83, line 20, leave out 'This' and insert
'Subject to subsection (11) below, this'.

No. 195, in page 83, line 22, at end insert—
`(11) This section does not apply, in the case of securities which are transferred, if the Board are satisfied—

(a) that on or before 18th March 1986 the transferor (or, where the transferor transfers as agent, the

principal) agreed to sell securities of the same kind and amount to the person (other than A) referred to in subsection (1)(a) above, and
(b) that the transfer is effected in pursuance of that agreement.'.—[Mr. Ian Stewart.]

Clause 94

INTERPRETATION

Amendments made: No. 196, in page 84, line 6, leave out `registered' and insert 'incorporated'.
No. 197, in page 84, line 15, at end insert
'the transfer of which is not exempt from all stamp duties'.
No. 198, in page 84, line 17, at end insert
`the transfer of which is not exempt from all stamp duties'.
No. 222, in page 84, leave out lines 22 to 26 and insert—

'(a) that a person holds stocks or shares or evidence of the right to receive them, and
(b) that another person is entitled to rights, whether expressed as units or otherwise in or in relation to stocks or shares of the same kind, including the right to receive such stocks or shares (or evidence of the right to receive them) from the person mentioned in paragraph (a) above,

except that a depository receipt for stocks or shares does not include an instrument acknowledging rights in or in relation to stocks or shares if they are issued or sold under terms providing for payment in instalments and for the issue of the instrument as evidence that an instalment has been paid.
(7A) The Treasury may by regulations provide that for subsection (7) above (as it has effect for the time being) there shall be substituted a subsection containing a definition of a depositary receipt); and the power to make regulations under this subsection shall he exerciseable by statutory instrument subject to annulment in pursuance of a resolution of the House of Commons.'.

No. 223, in page 84, line 28, at end insert—
'(9) In interpreting "chargeable securities" in sections 90, 91 and 92 above—

(a) the words in subsection (4) above from "unless" to the end shall be ignored, and
(b) the effect of paragraph 8 of Schedule 14 to the Companies Act 1985 (share registered overseas) and of section 118 of the Companies Act (Northern Ireland) 1960 and paragraph 7 of Schedule 14 of the Companies (Northern Ireland) Order 1986 (equivalent provision for Northern Ireland) shall be ignored for the purposes of subsection (5) above.'. —[Mr. Ian Stewart.]

New Clause 34

TRANSFER PAYMENTS AND PRESERVED BENEFITS (No. 2)

`(1) It shall be permissible for the trustees of an occupational pension scheme which is an exempt approved scheme under section 21 of the Finance Act 1970, to amend the rules of the scheme in regard to the calculation of transfer payments and of preserved benefits on behalf of any member ending pensionable service before the normal age of retirement under the scheme in accordance with the provisions of this section.
(2) For the purposes of this section "trustees", in relation to a scheme which is not set up or established under a trust means the managers of the scheme.
(3) To comply with the provisions of this section, the amended rules of the scheme shall require the trustees in respect of any member withdrawing from pensionable service before the normal pension age under the rules of the scheme at the withdrawing member's option either—

(a) to pay to an approved scheme a transfer payment in respect of the withdrawing of Members' entitlement of the o sum that would be required by the withdrawing member's scheme for the purpose of admiting a new member of the same age, sex and pensionable remuneration as the withdrawing


member in order to credit him with the same number of years of pensionable service as the withdrawing member, (but subject to modification in accordance with (4) below) or
(b) to award preserved benefits to the withdrawing member of the same actuarial value as that sum.

(4) In a case where an actuary certifies that on the date of the certificate the scheme is not fully funded, (which is to say that the scheme does not have sufficient assets to meet its liability in respect of the whole or any specified part of the accrued rights to benefit of its members), the transfer payment, or as the case may be, the part of the transfer payment which corresponds with that specified part of those accrued rights, may be reduced by the percentage by which the scheme is so shown to be deficient.
(5) A scheme which by 1st January 1987 has not amended its rules so that the transfer payments and the preserved benefits payable under the scheme are to be calculated on terms at least as favourable to the beneficiaries as those specified in this section shall not qualify as an exempt approved scheme in respect of liabilities incurred after that date except by the permission of the Occupational Pensions Board.
(6) A scheme may apply to the Occupational Pensions Board for deferment of the latest date for the amendment of its rules in accordance with this section and to retain its status as an exempt approved scheme in respect of its liabilities incurred after that date to a date not later than 1st January 1992.
(7) The Secretary of State for Health and Social Security shall lay before Parliament regulations under this section subject to affirmative resolution of the House of Commons which shall specify the grounds on which the Occupational Pensions Board may approve applications for deferment under subsection (6) above.'. — [Sir Brandon Rhys Williams.]

Brought up, and read the First time.

Sir Brandon Rhys Williams: I beg to move, That the clause be read a Second time.
I think that the House is well aware of my longstanding interest in the protection of the rights of early leavers in occupational pension schemes. This issue is of significance when considering this year's Budget, because the Government have rightly introduced a measure in the Budget that will have a bearing on the way in which such schemes are required to balance their assets and liabilities.
About 18 months ago, there was an extensive debate about the way in which occupational pension schemes should be allowed to develop. Several people said that the tax regime enjoyed by those schemes was either too generous or was being abused. Rumour had it that in the 1985 Budget my right hon. Friend the Chancellor of the Exchequer intended to make a dramatic reduction in the extent of the tax advantages enjoyed by private sector occupational pension schemes. Fortunately, the predictions published in the press at that time proved to be incorrect. But the debate served a useful purpose, as it drew attention to the fact that the 1970 Act was open to serious abuse.
I do not wish to detain the House long, but I should like to draw attention to a letter that I wrote last year to The Times, and which was published on Budget day, 19 March 1985. I shall not weary the House by reading it all, but the last two paragraphs are still relevant. I wrote:
If the Chancellor were to require pension trustees to separate the assets which are allocated for individual beneficiaries from their general reserves, the former could retain the habitual tax exemption, while the income from the unallocated or excess funds could be taxed like that from any other company assets.

It would be a reasonable reform, and it would serve the good purpose of encouraging trustees to adopt conventional money-purchase principles. I would also encourage them to allocate each individual his full accumulated rights, while still in service, and to pay transfers for the early leavers of the full amount of their entitlements.
I do not think that much notice was taken of my letter at the time, because on the same day it became evident that my right hon. Friend the Chancellor would not make any dramatic change in the 1985 Budget. But the problems of the early leavers remain. I was, therefore, particularly pleased when, to the surprise of all concerned, the Chancellor announced in this year's Budget speech that he intended to tackle abuse of the 1970 Act along more or less exactly the lines that I had recommended in my letter. What the Government are doing is entirely right. There may need to be further study as to whether 105 per cent. is the right amount for funds to be able to retain without incurring any penalty, but, having listened to experts, I believe that the Government have got things right. However, no doubt that point can be further considered by the experts.
In general, the Government seem to be moving in the right direction. There has undoubtedly been a tendency for corporate treasurers to park funds in pension schemes when there was an occasional surplus in the availability of capital, so that advantage could be taken of the tax regime intended for the pension funds' beneficiaries. The money could be drawn out again when the company required it by the simple device of paying less money into the pension fund than would be demanded in the normal course of events by the annual increase in its liabilities.
The Government saw that abuse, and have acted to prevent it from continuing. When I heard the speech of my right hon. Friend the Chancellor, I thought that the Treasury would at the same time produce a new regime for assessing the assets and liabilities of occupational pension funds, so that there would be a compelling advantage to funds to put the highest possible value on the rights of potential early leavers in order to reduce the likelihood of a tax penalty being incurred from time to time as the scheme's funds developed. But I understand that the Treasury has not seen the opportunity, or, if it has seen it, is not seizing it. That is why I have devised this new clause.
In a moment I shall go through the provisions that I recommend. However, if I took as long to explain the precise purpose of every line as I took to draft it, and if I added to that the amount of time that I insisted that senior people in the profession should devote to giving me advice, hon. Members would be here for a long time. I do not want to weary hon. Members with the precise implications of every line, but I hope that the provisions I am suggesting in my new clause will be drawn to the attention of the Treasury and of those interested in occupational pension schemes. In addition, I hope that other Departments that have an interest in how we provide for private retirement provision will also take an interest.
It is the Government's policy to encourage British citizens to be independent, to stand on their own feet financially, and to make their own provision for retirement. That is so much a part of Government policy that it hardly needs restating. In particular, it is the Government's stated policy to encourage the development and improvement of occupational pension schemes. This is not a matter of controversy; all hon. Members accept it. Moreover, few people would deny that there is now a tendency in Britain towards consumption rather than


saving. That is an unhealthy feature of the economy. One need only compare the sort of goods in high street shops and the volume of imports of consumer goods that British people can afford with the volume of investment, particularly in manufacturing industry, to see that there is a rather unsatisfactory balance.
If the Government did something to encourage money to flow into fresh, real savings and investments, and which at the same time would discourage the flow of money into consumption —particularly as current wage settlements are often far higher than is justified by the growth in productivity—it would be a healthy move.
It is only reasonable to point out that early leavers in occupational pension schemes who change jobs in mid-career incur substantial losses. Even if I consult people like the Government Actuary, or study published returns, I find it difficult to make a fair assessment of the amount of money being lost by early leavers through their being paid their transfer values—or being awarded preserved benefits—which are far less than the value of the assets that they leave behind. However, it would appear that the figure is not less than £20 million every week, or £1,000 million every year. Some reliable estimates put the figure much higher than that; but I do not know whether to place too much emphasis on them, partly because it is difficult to assess the effect of the reforms that have been made in recent years, particularly with effect from 1 January 1986.
We hope that those reforms will alleviate the situation. But we are talking about a substantial loss of money, when that money should constitute part of each individual's real assets and part of his savings for a future time. The effect of that forfeiture is that there is a burden on employers to tip the amount of remuneration that goes to employees away from deferred pay, and to increase the amount of money that goes into immediate consumption through the pay packet or salary. More money flows in the direction of immediate consumption and less in the direction of savings. If the pension fund can make a profit from the early leavers, the employer does not have to subscribe so much to enable it to meet its liabilities.
If the Government have taken steps to prevent the abuse of the tax exemptions—they might be called the tax "privileges" — of occupational pension schemes, which are of long standing and were confirmed by the 1970 Act, we are right to consider whether the House should not also take this matter further. Schemes which are overfunded in relation to their present liabilities will be encouraged by this year's Budget to improve the award of benefits; but not enough is being done specifically to help the early leavers. If schemes do not take the opportunity to improve the level of benefits, they may have to take steps to bring their assets and liabilities into better balance in ways that could involve tax penalties. That is self-evident and quite proper. I had hoped that, in working out the details, Treasury Ministers would ensure that the tightening Op would specifically include a compelling incentive to occupational pension schemes to put their houses in order in regard to the calculation of transfer values.
6 pm
Two serious obstacles are believed to lie in the way of dramatic action to stop the occupational pension schemes from bleeding the early leavers: the fear that employers will protest strongly at the extra burdens and that there

will be a political reaction; and secondly the understandable reluctance to bring in what might be held to constitute retrospective legislation.
Obviously, if early leavers are losing £1 billion a year and Parliament acts effectively to remedy that, the money must be found from somewhere. There is no necessity for that burden to fall immediately on employers because, to a great extent, occupational pension schemes at present are flush with funds. They could well afford to carry this extra burden, especially if the liability is spread over some years, without needing to go immediately to employers to require them to top up their schemes.
Firms which expect to recruit staff from other firms over some years would also recognise that, although there would be bigger outgoings with the staff they lost, there would be larger receipts with the staff they gained from other occupational pension schemes. Firms which expect to bring people on to their books in mid-career would be relieved of the necessity of putting enormous sums of money in the pension funds in respect of people whom they recruited from elsewhere, because they would bring with them a full transfer payment to justify their inclusion in the pension fund on reasonable terms.
There would also be a switch from payment of remuneration, mainly in the form of a stimulus to current spending, and some movement to saving through a formal trust instead. There is no reason why employers who are under pressure to give greater remuneration to their payroll staff and management should not point out that they will put more into the pension fund as a result of Parliament's intervention and that, therefore, there is genuinely less money available to distribute in the form of increased wages.
I would like to consider the position of firms that might judge that they would stand to lose substantially if they were required to pay transfer values that genuinely reflected the value of the early leavers' assets. Presumably, they would be firms that expected to have decreasing numbers of senior employees. The obvious case would be firms that had just been the victims of take-overs by unscrupulous bidders who would expect to discharge a large number of senior people with the objective of relieving the burden on the pension fund. They could then raid the pension fund to restore the expenditure which they had had to incur on acquiring the firm.
I have no sympathy with take-over bidders whose main objective is the pension fund with which they can recoup the expenditure laid out in acquiring the business. They attack defenceless people who have given long service to the firm so as to grab their rights and put the money into the bank. If Parliament intervenes to prevent such conduct, it will be applauded by every fair-minded person.
We must all respect the natural reluctance of Governments to let themselves be accused of introducing legislation with retrospective effect. We must concede that, when pension schemes have been in existence for many years, people who have been accumulating assets in those funds for 30 or 40 years will be involved. The assets held against the fund's liabilities have been built up under a stable tax regime which everyone understands and under employment contracts which are known to the parties and are generally in the form of the printed rules of occupational pension schemes. It could be said that it is undesirable, but it is a fact under the rules which have existed for years that transfers are not expected to he made at the full actuarial value. It is possible to argue that it is


an accomplished fact. If we now try to insist that people of long service who leave their service before normal pension age should be given money which their employers did not expect to be obliged to give, Parliament's intervention to require employers to pay out much more money could be held to be retrospective.
I have deliberately drafted my proposals to escape that criticism. My provisions would reflect only on future tax concessions in respect of future liabilities. A firm that felt that it was under too much pressure because of my proposal that early leavers should be given a fair deal in future would have the option of winding up its fund within five years, and of making a new start in regard to its further liabilities incurred under the more generous regime which my new clause would impose. I do not envisage there being a danger — and professional people who work with these schemes agree—of a serious risk arising of a great number of firms winding up their schemes. I shall not go into the many reasons unless the House wishes me to do so.
The Government plainly do not think it is obligatory to leave the tax provisions totally unchanged in regard to the abuse of stacking funds into occupational schemes simply to take advantage of tax benefits. I believe that the House concurs with that. We can therefore feel free to amend the tax regimes of occupational schemes under the 1970 Act to prevent this abuse of overfunding. Surely we are also free to exercise the taxpayer's rights in the interests of securing natural justice for early leavers. The taxpayer has a stake in these private sector schemes because the essence of the tax concession is that tax liability is deferred until the money is paid out. The taxpayer therefore may have to wait 40 or more years before the tax which might have been levied on the firm is eventually recovered in the form of the income tax which has to be paid by the pensioner at the end of his days. In all that time, the money is building up, completely free of capital gains and other taxation, at compound interest in the hands of the firm's trustees. The taxpayer is making a substantial tax concession to the schemes and at the end of the day a large part of the funds of these schemes is, in effect, the taxpayer's money. I see no reason why taxpayers should be obliged to help these schemes in such a way if they continue to act in a way which nobody can seriously believe to be in accordance with natural justice or the best interests of the economy.
I took the opportunity yesterday, when there was a debate on the plight of the elderly, to point out how much it would assist the elderly if they were able to rely on better incomes from occupational pension schemes. I pointed out that there is a major deficiency in these schemes, which is that the high fliers and other people who have to change their jobs stand to lose so much under the way in which the transfer valuations are made. My hon. Friend the Under-Secretary of State for Health and Social Security suggested that nothing should be done immediately, and that we should see how the transfer regulations which were brought in at the beginning of the year would work out in practice.
As I have said, I have consulted a large number of well-informed people. I do not think that any of them has expressed the view that what has been done so far to remedy the abuse of early leavers will put the problem right. That is not the expectation of the actuaries or the

people who operate in the area. Of course, I recognise and am grateful for the work that has been done by the Department of Health and Social Security and others concerned to make some improvement. However, they have not met the problem fully. That is the opinion of well-informed people.
Let us suppose we are all wrong, and that what was done at the beginning of this year has solved the problem. In that case, there would be no extra burden to the occupational pension schemes if the Government were to accept my new clause because they would simply be confirming something which they had already brought about. In that case there would not be any serious risk of imposing new burdens on the schemes.
I should like the House to give serious consideration to this problem. We need to encourage job mobility, we need better provision for retirement, and we have to ensure that taxpayers' money is not misused, as it certainly is by occupational pension schemes that act against the more efficient running of the economy. We have to uphold natural justice. I therefore trust that the House will agree to give my new clause a Second Reading.

Mr. Ian Stewart: My hon. Friend the Member for Kensington (Sir B. Rhys Williams) has a deserved reputation for having, over a long period, expressed an interest in and campaigned on behalf of early leavers from pension fund schemes. I think that by that campaign, which he has pursued by raising the matter in the House on numerous occasions and by other means such as writing to The Times last year, as he reminded us, he has done a great deal to draw public attention to one of the problems which has become more acute in recent years. People tend to change jobs more often and, therefore, the number of those who leave pension schemes before retirement age has been increasing.
Credit is due to my hon. Friend for having, if not single-handedly, changed the climate and approach of many trustees of pension schemes to the way in which they consider the position of early leavers. He has certainly done something towards encouraging a greater awareness of their problems and, as a consequence, by practical means early leavers are now not treated quite as badly as they were a few years ago. I would accept that there is probably further to go on this issue.
6.15 pm
My hon. Friend's new clause is ingenious and, in technical terms, it is well organised. He has taken a great deal of trouble not only to specify clearly what his objectives are, but to find a means of establishing how they can be achieved in statute. However, I am sure that he will not be surprised to learn that I do not feel inclined to recommend to the House that his new clause be accepted.
My basic reason for opposing the new clause has nothing to do with whether I am sympathetic to the position of early leavers, or to many of the arguments that my hon. Friend has deployed. The central point is that an occupational pension scheme is a voluntary arrangement set up by an employer for his employees and, although the Revenue has rules governing the maximum level of benefits that a scheme may offer if it is to qualify for tax exemption, I do not think that it would be right for the tax system to be used as a means of compelling trustees to dispose of their resources in a particular way.
My hon. Friend obviously takes a different view. However, we believe that it is right to leave the trustees of


schemes with the freedom to provide whatever benefits they consider appropriate in relation to membership of the scheme and, of course, what they presume would over a period of time, be in the interest of employment in the company concerned.
In principle, that is the right approach. Even if it were not, I do not think that it would be right to entrust the Inland Revenue with the responsibility of establishing whether the distribution was properly organised to meet the approval which would be required to avoid an extra charge to tax.
My hon. Friend's new clause introduces a new condition for tax exemption and any scheme that did not offer full protection in those terms for the pension rights of early leavers would lose its approved status. As I said, I do not regard that as a natural or, perhaps, proper use of the tax system for pensions, because the tax system is essentially designed to ensure that tax relief is given only for bona fide pension arrangements without looking through them to try to determine the quality or distribution under the schemes.
Last night my hon. Friend spoke of introducing what he called an "overpowering" incentive. Today he used the term a "compelling" incentive. Certainly, to use the tax lever in the way in which he has suggested today to deal with the content of pension schemes would amount to an overpowering and compelling instrument for achieving that end. I am not at all convinced that it would be proper to proceed in that way.
My hesitation is strengthened by looking at subsection (7) of new clause 34 where my hon. Friend is inviting the Secretary of State for Social Services and not my right hon. Friend the Chancellor of the Exchequer to lay regulations before Parliament. The approach to the conduct of pension schemes really is a matter for the DHSS rather than for the Treasury. I am not in a position to judge whether the new regulations will have more favourable results than my hon. Friend suspects. However, my right hon. and hon. Friends in the DHSS will need to follow that through.
I see certain problems, even if one accepts the principle of what my hon. Friend is trying to achieve, because if a scheme failed to satisfy the Inland Revenue on his new condition, it would lose tax exemption on all its resources. That would affect long-stay members of pension schemes, shorter-stay members, and so on. I cannot believe that that consequence would be in scale with the objective that my hon. Friend is trying to achieve.
There can be little doubt that our proposals this year for dealing with pension scheme surpluses will result in improvements in pension benefits. Like my hon. Friend, hope very much that a material part of that improvement will go towards providing a better deal for early leavers than many schemes have in the past. If the debate serves no more immediate purpose than drawing to public attention the case for doing so, the House and the public will have cause to be grateful to my hon. Friend for it. However, the subject of early leavers, important as it is, must remain a matter for the trustees of individual schemes to decide upon in the light of their own circumstances.
While I have sympathy with the principle of the case that my hon. Friend is advancing in terms of better provision for early leavers, and while I recognise the changes in employment patterns of recent years and the way in which early leavers have always had a worse deal

than those who have stayed through to retirement, I am sceptical about the method that he has chosen as the prospective means of trying to achieve it. Following this short debate, I shall discuss the matter with my right hon. and hon. Friends in the Department of Health and Social Security because it is right that I should give something more than a commitment just to draw it to their attention. It should be drawn to their attention, but I should like to talk to them about it.
I doubt whether there are likely to be circumstances, even in the light of all that, which would justify using a direct tax weapon to achieve what, after all, is a structural change in the pattern of pension provision. A structural change has begun to take place, and we may encourage it, but I reluctantly part company with my hon. Friend on the suggestion of using tax penalties to achieve it.

Sir Brandon Rhys Williams: I should like to comment on some of the remarks of my hon. Friend the Economic Secretary. If he had had longer to consider the precise implications of the new clause, he would not have made them: his criticisms of my proposals do not bear comparison with my text.
My hon. Friend takes the view that private occupational pension schemes are voluntary arrangements, and it would be wrong to use tax as a means of compelling the trustees to dispose of their resources in a particular way. However, the tax regime that applies to those schemes is already extremely rigid. Many regulations have been introduced through the Inland Revenue's administrative control or in statute which require the trustees to act in a particular way. In my new clause, I am merely suggesting that there should be one more provision for the future.
My hon. Friend also made the mistake of thinking that what I am suggesting would, have a retrospective effect; but I spent quite a long time seeking to explain that it would not. I did not go into the new clause line by line, but it would have no retrospective effect because the trustees, in so far as they had acquired liabilities or assets up to the date on which the new clause came into operation —which would probably be deferred for as much as five years—would be able to continue to enjoy precisely the same tax regime as they do now.
The other thing that surprises me is that at the very moment when the Government are introducing their own changes in the tax provisions governing these schemes they should object to a Back Bencher trying to do the same. My hon. Friend is not logical if he recommends to the House that we should approve the tax changes in regard to the overfunded schemes, yet says that there should be no lax changes in regard to schemes that offend in other ways against the principles under which they were set up.
I cannot believe that anyone on either side of the House seriously thinks that it is right that early leavers should be given transfer values or preserved benefits that are far less than the value of the assets that the scheme is holding for them should they decide to remain in the service of the employer. That offends against natural, justice. I cannot accept that my hon. Friend's speech today is to be the last word on the subject.
My hon. Friend made a commitment, which I value, and I trust him implicitly. He agreed that he would commit himself to discuss the matter with the DHSS. I suggest that he should also discuss it with the Department of


Employment, because there is a substantial interest for that Department, too, in promoting job mobility, particularly for senior management and high fliers.
I conclude with the same recommendation that I made last night, that the Government should set up an interdepartmental study of the matter and produce a White Paper at an early date. In view of my hon. Friend's reaction, I can see that it would be futile to press my new clause now, so I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New clause 35

LEAVE TRAVEL FACILITIES FOR MEMBERS OF THE NORTHERN CONSTABULARY

'(1) No charge to Schedule E tax shall arise in respect of travel facilities provided for members of the Northern Constabulary and their spouses and children posted in Orkney, Shetland or the Western Isles, going on or returning from leave, up to a maximum of three return journeys per year.
(2) This applies whether the charge would otherwise have arisen under—

(a) section 36 of the Finance (No. 2) Act 1975 (certain vouchers treated as benefits in kind);
(b) section 61 of the Finance Act 1976 (benefits in kind for the higher paid); or
(c) Chapter I of Part VIII of the Taxes Act (Charge to Schedule E tax);

and applies to the use of travel vouchers or warrants for particular journeys.
(3) This section has effect for the year 1986–87 and subsequent years of assessment.'.—[Mr. Wallace.]

Brought up, and read the First time.

Mr. James Wallace: I beg to move, That the clause be read a Second time.
When we consider the Finance Bill in the House, we are used to dealing with provisions involving millions, sometimes even billions, of pounds, but, according to a written answer given to me on 7 February this year by the former Financial Secretary to the Treasury, the cost to the Exchequer, if the new clause were implemented, would be
unlikely to exceed £40,000 per annum."—[Official Report, 7 February 1986; Vol 91, c. 279.]
In the context of the Finance Bill, it seems to be a relatively small sum. However, if the new clause were passed, substantial justice would be done to the police officers posted to my constituency and that of the right hon. Member for Western Isles (Mr. Stewart).
I should like to give a brief background on how the matter arises. Until 1981–82, police officers posted to the Western Isles and Orkney and Shetland were given three free journeys a year to the mainland for annual leave purposes, for themselves and their family, and a car. They never received cash in hand. They got no compensation if all the warrants were not used up. That arrangement was in accordance with an agreement of the Police Council for the United Kingdom. Doubts were raised subsequently about the non-taxability of the warrants. Thereafter, the Inland Revenue concluded that the warrants should be taxed under section 36 of the Finance (No. 2) Act 1975. Since the financial year of 1983–84, tax has been paid.
The Northern Constabulary covers the local authority areas of Highland region, Orkney islands council, Shetland islands council and Western Isles islands council. The area, although small in population, is the largest

geographical area of any police constabulary in the United Kingdom. The officers, who come from all over the area, have no choice of where they are posted, and so many from the mainland, the Highland region, are posted to the remote islands of my constituency and that of the right hon. Member for Western Isles.
The new clause seeks to return us to the situation before 1983–84. In proposing the new clause, I have leaned heavily on section 37 of the Finance Act 1977, which allows exemption for travel warrants for members of the armed forces. When that provision was under discussion in the House, on 14 July 1977, the then Financial Secretary in the Labour Government, the right hon. Member for Ashton-under-Lyne (Mr. Sheldon), said that it applied
not only to travel vouchers and warrants for particular journeys but also to allowances and other payments for and in respect of leave travel, whether or not a warrant is available".
He went on to say that service men are subject to discipline and restrictions on where they can travel. They are subject to recall and they commit an offence if they do not return. He said:
They are subject to compulsory transfer without warning from one part of the country to another and they are regarded as being on duty at all times".—[Official Report, 14 July 1977; Vol. 935–1, c. 829.]
6.30 pm
We submit that policemen in the category covered by the new clause are in a similar position to members of the armed forces. As I have said, under the Police (Discipline) (Scotland) Regulations 1967 they cannot refuse a posting. They are always subject to recall when on leave. They are subject to transfer and are liable to have leave cancelled at very short notice or to have rest days cancelled.
That may be a concept which hon. Members representing other parts of the country may not readily be able to understand. If one happened to be the only policeman on the island of Unst in the very northern part of Shetland, one would never be off duty. At any time during the day or night the people of the island might wish to turn to the police officer. That is an onerous duty to impose on any police officer and that is the position in many parts of my constituency.
Under the police regulations there are restrictions on the private lives of these serving police officers. Although these are the formal regulations to which officers are subject, we must also consider the reality of life in the remoter parts of the country. The officers are obliged to take their families with them because they would have to pay additional rent if the family remained behind. There may be no shops in the remote location to which an officer is posted for his wife and family to spend time in. Even planning leave and holidays — which is the subject matter of the new clause — can often be hazardous because of unforeseen weather conditions. As it is important to arrange relief and to provide a locum when a police officer in an outlying area goes on leave, early notice must be given of holiday arrangements.
The Scottish Police Federation sent a briefing to Scottish hon. Members which described the policeman's lot on an island as one in which the officer suffered from:
Isolation, frustration, despair — and now anger at taxation.
These are no mean words to come from a body such as the Scottish Police Federation.
Hon. Members may wonder why these officers should be entitled to relief on transport costs when other police


officers serving within mainland parts of the Northern constabulary are not so entitled. The travel concession award only takes the police officer from the island to the nearest place on the mainland by air or by sea. I visited the Transport Office before the debate and discovered that the cost of a return flight from Lerwick to Inverness is £138; the cost of a return flight from Kirkwall to Inverness is £110; and from Stornoway to Inverness it is £80. Obviously other figures could be provided for ferry crossings and other routes. However, once the officer reaches the mainland he must make arrangements for himself and his family and that must come out of his own pocket.
We are not comparing these concessions with the islands' allowances which local government employees or employees of other companies receive when they are transferred to these locations. Often these are cash-in-hand allowances which can be used how the recipient wishes. We are considering a limited case of travel warrants.
The police officers involved have visited my surgeries and expressed their great frustration over what has happened. They would like to see a return to the pre-1983 position. Although there was an exemption from tax, that was not necessarily a precedent and the floodgates were not opened. For that reason, I ask the Minister, even if he feels that there is something defective about the new clause, to make a positive response and show a sensitivity to the problems faced by police officers in my constituency. I hope that he will show a willingness to meet the difficulty which I have highlighted in the debate.

Mr. Donald Stewart: I need only make a short intervention in support of the new clause and the excellent submission made by the hon. Member for Orkney and Shetland (Mr. Wallace).
The system had worked fairly well for many years until, in the last year or two, someone regarded these warrants as liable for tax under section 36 of the Finance (No. 2) Act 1975. Police officers directed to go to the islands have no choice in the matter. They must go or suffer the consequences under the discipline of the police force. Although it may be a surprise for my hon. Friends to learn this, not all the officers are pleased to move in that direction. Some feel a sense of isolation or object as family men to the high cost of living on the islands. The islands' councils have made provisions for other people in the form of island allowances. Some companies and indeed the Civil Service have also made concessions. However, no concessions are made to police officers. The officers involved have a real sense of grievance. They are discriminated against in relation to their mainland colleagues.
The effect of the Finance Act (No. 2) 1975 was modified at a later stage to meet objections from members of the armed forces. As the hon. Member for Orkney and Shetland has explained, the criterion is exactly the same for the armed forces as it is for the police. Justice demands that that concession—if that is the correct word, or at least that modification—ought to apply to the police as well.
Many of us have been pressing the Exchequer for some time to arrive at an equitable decision on this matter. Officers directed to the islands face hardship and many are liable for duty around the clock. Fair treatment would demand that they have the same right as members of the

armed forces. The removal of this sense of injustice could be achieved by the acceptance of the new clause. I hope that the Minister will take that into account.

Sir Russell Johnston: I rise briefly to support the arguments put by my hon. Friend the Member for Orkney and Shetland (Mr. Wallace) and the right hon. Member for Western Isles (Mr. Stewart).
I was the parliamentary adviser to the Scottish Police Federation for six years from 1970. In 1971 the Police Council for the United Kingdom agreed that police officers serving in the Western Isles, Orkney and Shetland would be entitled to three travel warrants a year. That, after all, did not involve a large number of travel warrants. The right hon. Member for Western Isles and my hon. Friend the Member for Orkney and Shetland have explained the justification for that. That entitlement operated for 10 years. We would all be happy to see the allowance for police officers re-established and administered in that way, without necessarily having the statute altered. There were no problems with the procedure which existed for 10 years.
My hon. Friend the Member for Orkney and Shetland made the important point about the comparison between the armed forces and the police force. I must repeat that the position of the police officers in the islands is the same as that of the armed forces. Indeed, in many respects it is more onerous, as police officers are required to carry out their duties in a more focused way than are members of the armed forces.
It is perfectly fair to remark that the case has not been made for an island allowance. One can make a case for that, but it is not the case being made this evening. Many people work on islands for a variety of reasons. They volunteer for island positions, often for promotion, and they are well aware of the pros and cons. But travel warrants are a fair way of dealing with the problems of distance and separation which police officers encounter, especially because of their responsibilities in small communities.
It is true that travel warrants are used for annual leave, but to suggest that that is their sole use is inaccurate. They are a lifeline and are used for visiting the mainland, whether because of bereavement, to see sick relatives or for treatment. This is a fair case and, knowing that the Minister is reasonable, I hope that he will listen to it sympathetically.

Mr. Charles Kennedy: Like my hon. Friends the Members for Orkney and Shetland (Mr. Wallace) and for Inverness, Nairn and Lochaber (Sir R. Johnston), and the right hon. Member for Western Isles (Mr. Stewart), I shall be brief in completing this quartet from the far north which is seeking to persuade the Minister on this point.
It is an unjust anomaly that members of the armed forces, rightly, enjoy this concession while the police do not, although its terms and description are equally applicable to the police. As my hon. Friend the Member for Orkney and Shetland said, service men are also subject to discipline, restrictions and compulsory transfer, and are regarded as being on duty at all times. The position of the sole police officer serving on the island of Unst, which he described, is repeated elsewhere in the Western Isles,


Orkney and Shetland. Surely the position of police officers is identical in every sense with that of service men in respect of this concession.
In March my hon. Friends and I had further correspondence with the then Financial Secretary to the Treasury, who said in a letter to me:
While I certainly do not undervalue the work done by these officers, nor minimise the importance of these trips to their families, I am afraid that it is plain that a valuable benefit does arise which ought, in principle, to be taxed.
The second half of that sentence makes the case for why that benefit should not be taxed. It was, indeed, a valuable benefit, not in terms of the Treasury's coffers — it receives an insignificant, negligible income from this—but to the individuals and their families.
I do not think that it will blow the Government's spending plans before the general election if the concession is conceded, or that the Star Chamber will descend on the heads of Treasury Ministers if they give way on this point. Therefore, I hope that they will be sympathetic and constructive. It is a genuine point and has all-party support. All hon. Members from this part of the country appreciate the difficulty and hope that the Government can do something about it.

The Minister of State, Treasury (Mr. Peter Brooke): The hon. Member for Orkney and Shetland (Mr. Wallace) moved his new clause eloquently. In passing and removed from the rest of my comments, I wish to remark that the Committee of the whole House at the beginning of May coincided with a by-election in Derbyshire, West and tonight this stage coincides with a by-election in Newcastle-under-Lyme. On the previous occasion it was notable that alliance Members were absent from the Benches, but I notice that more of them are present today. Whether that is an index of their forecast of the election result will be for time to tell.
6.45 pm
The new clause seeks to exempt from tax the travel warrants provided for police officers in the Northern constabulary who serve in the offshore islands, so that they, their families and cars can return to the mainland three times a year.
I can understand the hon. Members' concern for the 120 or so officers in question and their families posted to the islands far away from other members of their families, and the authority's action in making it easier for them to be reunited with their families at reasonable intervals, but I am afraid that in law there can be no doubt that the warrants are taxable, and that since it cannot he argued that the officers or their families are in any way travelling in the performance of the officers' duties, there is no way in which, under the present rules, relief can be allowed.
Nor would it be right to allow relief on what amounts to a valuable benefit. I also took the global sum, which hon. Gentlemen have mentioned. But the cost of a return journey between Shetland and the mainland is about £130, and, as each officer is entitled to three journeys a year for him, his wife, family and car, the total benefit can easily amount to £1,000. These travel warrants are for what is clearly private travel, and to allow relief in those circumstances would merely open the door to a host of similar claims from other groups who would claim that they were being unfairly treated. It would immediately create an indefensible anomaly.

Sir Russell Johnston: What the Minister describes as an anomaly operated for a decade. Since it was originally established by the Police Council for the United Kingdom, why not let it continue?

Mr. Brooke: I noted the word "decade" against the hon. Gentleman's name and I shall come to that later.
Civilian employees of the Highland regional authority are posted to these islands and receive—

Mr. Wallace: That is factually incorrect. Apart from the islands close to the constituencies of my hon. Friends the Members for Inverness, Nairn and Lochaber (Sir R. Johnston) and for Ross, Cromarty and Skye (Mr. Kennedy), Highland region does not extend to Orkney, Shetland and the Western Isles which are in entirely separate local authority areas. There is no posting of local authority staff from Highland region to them, unless they go to promoted posts of their own free will.

Mr. Brooke: As the hon. Gentleman said, there are allowances for other people being posted to the islands. I accept that they are in the form of cash, not warrants, but if tax relief were granted on these warrants and this travel — I am not suggesting that the hon. Gentlemen who spoke would be quick to seek further relief for other groups — there would be pressure for relief to be available to others. It is difficult to see why a broadly similar allowance paid to policemen serving in the same islands should be exempt from tax while civilians pay tax on their allowances.
I shall now deal with the decade point raised by the hon. Member for Inverness, Nairn and Lochaber. The hon. Member for Orkney and Shetland quoted the speech of the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) during the passage of the relevant legislation. Warrants such as these have been taxable in the hands of all employees since 1976–77 by virtue of section 36 of the Finance (No. 2) Act 1975, which was introduced by the Labour Government. Its passage preceded the moment in March 1977 when the Liberal party was seduced into supporting that Government in office, so I cannot hold the Liberals responsible for the 1975 Act. But that was the genesis of it.
It was not until 1983 that the Inland Revenue became aware that warrants were being provided to these officers. The Revenue immediately made arrangements for tax to be collected in the normal way on the value of warrants from 1983–84. The employer agreed to meet the policemen's liability for earlier years. I accept that, up to 1983, the policemen were not being taxed, but the authority acknowledged that there was a liability and met the outstanding liability in 1983–84 when it was discovered.
Various hon. Members made much of the comparison with the armed forces. Section 37 of the Finance Act 1977 exempts from tax travel facilities provided for members of the armed forces going on or returning from leave. This is a specific and limited exception designed to meet the special and unique circumstances of forces life. A service man is always on duty and is subject to instant recall from leave and immediate transfer. The requirements of military discipline and national security, which are not features of a police officer's job, demand a high degree of mobility. It was agreed on all sides that it was fair and reasonable to exempt service men's leave facilities from tax. This


specific exemption is designed to meet special circumstances which do not apply elsewhere and is not a reason for exempting other benefits. I could go through the issue of the law again to illustrate this point.
The hon. Member for Ross, Cromarty and Skye was seductive on the cost, but one still has to come back to the principle of the tax. The hon. Member for Inverness, Nairn and Lochaber cited a number of cases which may involve journeys of travel, but in the process he demonstrated that those journeys were not being undertaken as part of an officer's duty. That is the critical criterion by which relief, under the legislation, is judged.

Mr. Terry Davis: I think that I shall be only hon. Member on this side of the House to speak in a different accent. Certainly I cannot be accused of having any constituency or personal interest. I have never visited these charming and delightful constituencies, represented by the hon. Members who have spoken, and I think it unlikely that I will. It is even more unlikely that I will fall foul of the police in those islands.
I have listened to the debate with great interest. I have received representations on this issue from my hon. Friend the Member for Glasgow, Garscadden (Mr. Dewar) and other hon. Friends who represent Scottish constituencies. I came to this debate with an open mind and I appreciate the importance of the principle which the Minister has put before the House. I am not convinced, having listened to the debate, that we should not amend the law in the way suggested by the hon. Member for Orkney and Shetland (Mr. Wallace). If the benefit is so valuable that it is worth £1,000, it follows that the tax on that benefit is very heavy. If an officer takes advantage of the warrants the tax must be about £290.
I am impressed by the argument that people do not usually have any choice about being posted. At the time of local government reorganisation I can well remember the sense of grievance felt by people in the west midlands. Fifteen years ago, policemen found that the area in which they were based was transferred from one authority to another. Police were transferred willy-nilly; they had no choice in the matter. Those who had joined the police force intending to be police in rural areas suddenly found themselves, as the result of local government boundaries being redrawn, in a totally different police force in a different area. I can understand that for policemen who are posted, against their wishes but because it is a disciplinary service, to the islands it is important for them to visit their family and elderly parents. From time to time they must take advantage—not a great benefit—of the three travel warrants a year. Those warrants may cover periods of sickness and family needs—the need to take children to see specialists. I do not consider that these warrants are of great importance but the tax on them is fairly significant, especially for people on low incomes.
We should take a more sympathetic attitude than that of the Government. It is significant that no other examples of people who would be posted involuntarily to the islands have been given. The Minister referred to people working for local authorities. If such people are sent considerable distances to another place of work, I would take a similar sympathetic attitude. The Minister did not give any other specific examples, and I would have been more impressed by his argument if he had been able to tell us the number of people who would fall into the new category if we passed the new clause.
I am not impressed by the Minister's argument with regard to the anomaly of the Army. Its position seems similar to that of the police. If the Minister intends to make a fetish of the principle of people being taxed on these benefits, I find it difficult to justify treating members of the armed forces differently. I would not have been surprised if the Minister—in the interests of consistency—had asked us to remove the benefits and tax relief enjoyed by members of the armed forces. I emphasise I am not suggesting that, but one cannot have it both ways.

Mr. Donald Stewart: At the beginning the Army were caught in the same trap and an exemption was made for it. That is all that we are asking to be made for the police.

Mr. Davis: I accept the right hon. Gentleman's valid point.
I disagree with the hon. Member for Inverness, Nairn and Lochaber (Sir R. Johnston) in one small particular. He argued that it was not necessary to change the law. I do not agree. It is necessary to be open, above aboard and frank about these exceptions. I do not agree that this should be done in some extra-statutory way against the wish of the House. It is right and proper that we should make exemptions where they are justified, but we must be clear about the reasons for making such exemptions. That is why I am impressed by the new clause.
I accept the Minister's point that it was an Act introduced 11 years ago by the Labour Government which had the effect of taxing benefits received by people who enjoyed the benefit of travel warrants. I do not take that criticism too seriously. We have found that, during the passage of legislation—there are many examples with which I will not bore the House—the Government have subsequently found it necessary to amend the law because it has had an effect which was not intended.
In the Bill we have the classic example of the American service men who are now to be exempt from car tax. On a previous occasion the Government's legislation imposed car tax—quite rightly—on American service men. The Minister cannot make too much about the errors of my predecessors. I do not believe it was the intention of my hon. Friends in the previous Labour Government to impose a tax in this situation. The hon. Member for Inverness, Nairn and Lochaber may make fun about our not spotting the defect at the time, but I do not believe it is a serious issue. Since 1983 some people have found that they are subject to tax, especially those who get the benefit of workplace nurseries. My hon. Friends and I have voted to restore that privileged position to those people who found the imposition of that tax a great burden.
If the hon. Member for Orkney and Shetland decides to press the new clause to a Division, I shall advise my hon. Friends to join him in the Lobby.

Mr. Wallace: I listened to the Minister's reply with disappointment. I accept that, as the law stands, these warrants are taxable, but that was the reason for bringing forward the new clause. One of our functions in the House is to change the law.
My hon. Friend the Member for Inverness, Nairn and Lochaber (Sir R. Johnston) said that these warrants were not being taxed during a 10-year period and that that was not against the law. Although they were exempt from tax, there was no clamour from other sections of the community for the exemption and no other specific examples have been given.

Mr. Jeremy Hanley: I am broadly sympathetic with the new clause. Although I understand that many members of the Northern constabulary are obliged to travel to places to which perhaps they do not wish to be posted, how many members of the constabulary in Orkney and Shetland are posted against their will?

7 pm

Mr. Wallace: I understand that 108 officers serve on the Western Isles, Orkney and Shetland and that 21 of them are native. It is impossible to go through the 87 non-native officers and ask them whether they are willing to go to the islands. Neither the right hon. Member for Western Isles (Mr. Stewart) nor I can understand why anyone could possibly not want to go there, but the Scottish Police Federation has made representations to us and individual police officers have drawn our attention to the considerable disadvantages of being separated from their families. It is not that they are wildly reluctant about their posting; it is just that it is simply not possible to be with relatives for the weekend as can be done on the mainland, even if quite large distances are involved.
The Minister gave no example of groups who would seek a similar exemption and mentioned the armed forces. As he read out the conditions of members of the armed forces, I thought that he seemed to describe the conditions which I said applied to the police. He rightly said that it is important for reasons of national security that there is mobility, but I do not think that he would devalue the importance of the police to local security. Moreover, they are always subject to recall when on leave.
Relatively, police officers might not have to travel very far, but the costs involved can be high—as high as, if not higher than, those incurred by members of the armed forces. We seek only comparability.

Mr. Kennedy: Does my hon. Friend agree that, although we would not have been astounded to discover that the Minister disagreed with us, we have been surprised by his negative response? He has given no undertaking to consider the matter. Does my hon. Friend agree that it is significant that the hon. Member for Birmingham, Hodge Hill (Mr. Davis), who said that he approached the issue with an open mind, feels that the balance of the argument rests with us? Is there not therefore a case for inviting the Minister to give a commitment to consider the matter again?

Mr. Wallace: The Minister will have heard my hon. Friend. We might have to consider how to dispose of the new clause if the Minister does not undertake to reconsider, especially in view of the clear comparability between the police and the armed services and the lack of examples of groups who would seek the same exemption.
I was grateful for the support of the hon. Member for Birmingham, Hodge Hill (Mr. Davis). Although I had not intended to push the clause to a Division, in view of the Minister's negative response and the fact that an independent arbiter—if there can be such in the House —has so clearly seen where the weight of the argument lies, I invite the House to support the clause.

Question put, That the clause be read a Second time:—

The House divided: Ayes 43, Noes 153.

Division No. 267]
[7.04 pm


AYES


Banks, Tony (Newham NW)
McDonald, Dr Oonagh


Benn, Rt Hon Tony
McKay, Allen (Penistone)


Bermingham, Gerald
Maclennan, Robert


Blair, Anthony
Miller, Dr M. S. (E Kilbride)


Boyes, Roland
Morris, Rt Hon A. (W'shawe)


Callaghan, Jim (Heyw'd &amp; M)
Nellist, David


Cartwright, John
Penhaligon, David


Clark, Dr David (S Shields)
Powell, Raymond (Ogmore)


Cohen, Harry
Randall, Stuart


Cook, Robin F. (Livingston)
Raynsford, Nick


Corbett, Robin
Sheldon, Rt Hon R.


Corbyn, Jeremy
Shields, Mrs Elizabeth


Davies, Ronald (Caerphilly)
Skinner, Dennis


Davis, Terry (B'ham, H'ge H'l)
Snape, Peter


Dubs, Alfred
Spearing, Nigel


Ewing, Harry
Stewart, Rt Hon D. (W Isles)


Faulds, Andrew
Wallace, James


Hamilton, W. W. (Fife Central)
Wilson, Gordon


Heffer, Eric S.
Woodall, Alec


Hogg, N. (C'nauld &amp; Kilsyth)



Howells, Geraint
Tellers for the Ayes:


Kilroy-Silk, Robert
Mr. Russell Johnston and


Livsey, Richard
Mr. Charles Kennedy.




NOES


Alexander, Richard
Gregory, Conal


Ancram, Michael
Griffiths, Sir Eldon


Ashby, David
Griffiths, Peter (Portsm'th N)


Aspinwall, Jack
Ground, Patrick


Atkins, Rt Hon Sir H.
Gummer, Rt Hon John S


Atkinson, David (B'm'th E)
Hamilton, Neil (Tatton)


Baldry, Tony
Hanley, Jeremy


Bellingham, Henry
Hargreaves, Kenneth


Benyon, William
Harris, David


Biggs-Davison, Sir John
Hawkins, Sir Paul (N'folk SW)


Boscawen, Hon Robert
Hawksley, Warren


Bottomley, Peter
Hayward, Robert


Bottomley, Mrs Virginia
Heathcoat-Amory, David


Bowden, Gerald (Dulwich)
Heddle, John


Brandon-Bravo, Martin
Henderson, Barry


Bright, Graham
Hickmet, Richard


Brooke, Hon Peter
Hill, James


Brown, M. (Brigg &amp; Cl'thpes)
Hirst, Michael


Bruinvels, Peter
Holt, Richard


Bryan, Sir Paul
Howarth, Alan (Stratf'd-on-A)


Bulmer, Esmond
Howarth, Gerald (Cannock)


Butterfill, John
Jackson, Robert


Carlisle, John (Luton N)
Jenkin, Rt Hon Patrick


Carttiss, Michael
Jessel, Toby


Cash, William
Jones, Robert (Herts W)


Chope, Christopher
Jopling, Rt Hon Michael


Clarke, Rt Hon K. (Rushcliffe)
Kellett-Bowman, Mrs Elaine


Clegg, Sir Walter
King, Rt Hon Tom


Conway, Derek
Lamont, Rt Hon Norman


Coombs, Simon
Lang, Ian


Cope, John
Latham, Michael


Couchman, James
Lawson, Rt Hon Nigel


Crouch, David
Lee, John (Pendle)


Currie, Mrs Edwina
Leigh, Edward (Gainsbor'gh)


Dorrell, Stephen
Lennox-Boyd, Hon Mark


Douglas-Hamilton, Lord J.
Lord, Michael


Eyre, Sir Reginald
Luce, Rt Hon Richard


Fallon, Michael
McCurley, Mrs Anna


Favell, Anthony
Macfarlane, Neil


Fenner, Mrs Peggy
MacGregor, Rt Hon John


Fletcher, Alexander
MacKay, John (Argyll &amp; Bute)


Forsyth, Michael (Stirling)
McLoughlin, Patrick


Forth, Eric
McNair-Wilson, M. (N'bury)


Fox, Sir Marcus
Major, John


Franks, Cecil
Malins, Humfrey


Fraser, Peter (Angus East)
Maples, John


Galley, Roy
Marlow, Antony


Gardiner, George (Reigate)
Maude, Hon Francis


Goodhart, Sir Philip
Maxwell-Hyslop, Robin


Goodlad, Alastair
Miller, Hal (B'grove)


Gorst, John
Mills, Iain (Meriden)


Gow, Ian
Mills, Sir Peter (West Devon)






Moate, Roger
Sims, Roger


Morris, M. (N'hampton S)
Smith, Sir Dudley (Warwick)


Moynihan, Hon C.
Smith, Tim (Beaconsfield)


Neale, Gerrard
Speed, Keith


Nelson, Anthony
Stanbrook, Ivor


Neubert, Michael
Stewart, Ian (Hertf'dshire N)


Newton, Tony
Taylor, Teddy (S'end E)


Nicholls, Patrick
Thatcher, Rt Hon Mrs M.


Norris, Steven
Thompson, Donald (Calder V)


Onslow, Cranley
Thome, Neil (Ilford S)


Osborn, Sir John
Thurnham, Peter


Ottaway, Richard
Viggers, Peter


Page, Richard (Herts SW)
Wakeham, Rt Hon John


Percival, Rt Hon Sir Ian
Waller, Gary


Portillo, Michael
Ward, John


Powell, William (Corby)
Wardle, C. (Bexhill)


Powley, John
Warren, Kenneth


Proctor, K. Harvey
Wells, Bowen (Hertford)


Raffan, Keith
Wells, Sir John (Maidstone)


Rhodes James, Robert
Wiggin, Jerry


Rhys Williams, Sir Brandon
Wilkinson, John


Ridsdale, Sir Julian
Yeo, Tim


Roe, Mrs Marion



Rowe, Andrew
Tellers for the Noes:


Sainsbury, Hon Timothy
Mr. Peter Lloyd and


Shaw, Giles (Pudsey)
Mr. Archie Hamilton.


Silvester, Fred

Question accordingly negatived.

Schedule 2

VEHICLES EXCISE DUTY: MISCELLANEOUS AMENDMENTS

Mr. Brooke: I beg to move amendment No. 31, in page 101, line 4, at end insert—

`Tower wagons used by street lighting authorities etc.
1A. In section 4 of the 1971 Act (exemptions from duty) in subsection (2) for the definition of "tower wagon" there shall be substituted the following—
tower wagon' means a goods vehicle—

(a) into which there is built, as part of the vehicle, any expanding extensible contrivance designed for facilitating the erection, inspection, repair or maintenance of overhead structures or equipment, and
(b) which is neither constructed nor adapted for use nor used for the conveyance of any load other than—


(i) such a contrivance and articles used in connection therewith, and
(ii) articles used in connection with the installation or maintenance, by means of such a contrivance, of materials or apparatus for lighting streets, roads or public places".'.

Mr. Deputy Speaker: With this it will be convenient to consider Government amendment No. 32.

Mr. Brooke: The two amendments propose to extend the current definition of a tower wagon used for street lighting purposes by a local authority or local authority contractor to allow for the carriage on the vehicle of street lighting poles and lamp standards.
Tower wagons used by local authorities or by a firm under contract to a local authority for the purposes of installing or repairing street lighting are exempt from the payment of vehicle excise duty. The current legislation allows for the carriage of articles used in connection with the tower wagon's lifting device. However, the High Court has held that, under current legislation, if street lighting poles are carried the entitlement to exemption from excise duty is lost.
It is now becoming not uncommon for local authorities and their contractors to carry street lighting poles on these

vehicles. Many tower wagons are being designed specifically with space for the carriage of poles. It is both reasonable and in line with the original intention behind the exemption that this practice should not deprive the vehicles concerned from entitlement to the vehicle excise duty exemption.

Amendment agreed to.

Amendment made: No. 32, in page 103, line 43 at end insert—

'Tower wagons used by street lighting authorities etc.
6A. In section 4 of the 1972 Act (exemptions from duty) in subsection (2) for the definition of "tower wagon" there shall be subsitituted the following—
'tower wagon' means a goods vehicle—

(a) into which there is built, as part of the vehicle, arty expanding or extensible contrivance designed for facilitating the erection, inspection, repair or maintenance of overhead structures or equipment, and
(b) which is neither constructed nor adapted for use nor used for the conveyance of any load other than—


(i) such a contrivance and articles used in connection therewith, and
(ii) articles used in connection with the installation or maintenance, by means of such a contrivance, of materials or apparatus for lighting streets, roads or public places".'.—[Mr. Brooke.]

Clause 20

RELIEF FOR INTEREST

Dr. McDonald: I beg to move amendment No. 4, in page 17, line 31, at end insert—
`and for basic rate taxpayers shall be £31,000'.
When I tabled the amendment I was not aware that the issue would be subject to the most interesting speculation in the press today, including, for example, the leader in The Guardian, in which we are told:
Mrs Thatcher's advisers are reported to be urging her to raise the amount of mortgage eligible for tax relief from £30,000 to £35,000. This idea is said to have been scorned by the Prime Minister's own harrowing househunting experiences. When she and Denis eventually found a £400,000 retirement home in Dulwich … she became convinced that home owners, particularly first time buyers, needed extra financial help.
I read that with wry amusement. We had begun to think that the Prime Minister was getting out of touch, but we did not think that the extent of the reality was quite so great that she had become sorry for the first-time buyers when looking for a £400,000 retirement home. When my constituents are looking for properties, they are looking for small flats, maisonettes or small houses at the cost of between £30,000 and £35,000. That is part of the source of concern expressed in the amendment.
In passing, I should mention that this is the only kind of amendment that the Opposition can table. The Opposition cannot table an amendment that increases the burden of taxation generally. The political point of tabling the amendment will become clear in my remarks because, as it stands, the amendment does not make a great deal of sense.
There are two points here. As I have indicated, our concern is over the rapid rise in house prices, particularly in London and the south-east. Throughout the country house prices in the second quarter of this year have risen by 11 per cent. over the previous year, but the regional


differences are quite significant. In Greater London house prices are rising at a rate of 21·9 per cent. on the previous year and, in the south-east as a whole, at the rate of 16 per cent. This is a very sharp increase in house prices and places enormous burdens on those who are looking for houses, particularly in London and the south-east. I am talking about modest flats, maisonettes and threebedroomed semis—the average house for the average couple.
The £30,000 ceiling may soon present difficulties for such purchasers. This is especially true if we bear in mind that the average mortgage advance for first-time buyers in 1985 in the Greater London area, according to figures supplied by the Building Societies Association, was £29,482. In other words, the average mortgage requirement is almost up against the limit for first-time buyers. In the south-east generally, the mortgage advanced to first-time buyers is just over £25,000. The limit is likely to be reached for many purchasers buying quite modest accommodation in London and the south-east.
We understand the concern about that, but the Prime Minister's sudden concern in this matter is purely political. If the right hon. Lady has it in mind to raise the limit for mortgage interest relief by £5,000 a year, she is thinking of Tory voters turning to the alliance in London and the south-east. If she were seriously concerned about the prospects for home buyers, particularly in London and the south-east, far more would have been done to prevent the sharp increase in house prices, which arises not just from the shortage of housing in the public sector, but from the shortage of housing in the private sector.
The number of new dwellings built last year was 189,000, which was 33 per cent. lower than in 1978. The Conservative party claims to be concerned about this and to wish to promote home ownership, but it is responsible for building so many fewer private homes than the last Labour Government did in 1978 that prices are shooting through the roof and many people, particularly young couples, cannot afford to buy anything. They cannot turn to the public sector either, as we all know from our experience as constituency Members of Parliament that houses and flats to rent from the local authority are simply not available.
The queues for new housing have trebled in London and the south-east, as well as in other parts of the country. The Prime Minister's sudden wakening to the thought that many young couples in London and the south-east find it difficult to afford a house has led her to believe that raising the mortgage interest relief will solve the problem. It will not. Money should be put into public sector housing to provide homes for those in need, and private house building should be encouraged. It would he if the economy were growing at a proper rate and if there were not the drag of so many unemployed.
The other part of the amendment is designed to limit mortgage tax relief to the standard rate of income tax. We support this form of relief for those wishing to buy their own property, but we see no reason why very large mortgages for rich people should be subsidised to the extent that they are by the Exchequer. In 1985–86, about 750,000 mortgagors received relief in excess of the basic rate of income tax. This represents about three quarters of

all the higher rate taxpayers. Just under 1 million mortgagors received enormous relief from the Tory Government.
This year the number has increased. It is estimated that about 800,000 mortgagors will benefit from the higher rate relief. These people know how to play the system and push up their mortgages to make sure that they obtain the maximum relief at the higher rate of income tax. The cost of that to the Exchequer is more than £1 billion. That figure was given in Hansard on 11 June, at column 201.
We are in favour of aiding people to buy their own homes, but we have in mind the average person buying an average home. That £1 billion should not be squandered on a tiny minority of higher rate taxpayers. It is disgraceful that such sums should be used in such a way. We make it clear that we shall limit the relief to the basic rate, which will benefit those on average incomes buying average homes. There are far too many homeless people. I have examples in my constituency of people whose marriages have broken up, and the wife and children are living in a council house or flat while the husband has to resort to sleeping at his place of work or in the car. That £1 billion cannot be justified as a proper expenditure by any Government while people are homeless and unable to find the council houses or flats that they desperately need.
The Labour party in government will put a stop to the squandering of revenue in such a way, while at the same time we shall ensure that average couples can buy the houses that they need with assistance from the Government through mortgage tax relief.

Mr. Robert Sheldon: We are grateful to my hon. Friend the Member for Thurrock (Dr. McDonald) for tabling the amendment. She was right when she said that what the Prime Minister has in mind has more to do with the forthcoming general election than with the housing problems. We saw that at the previous election. One of the last actions of the first Conservative Government was to increase the limit of mortgage tax relief from £25,000 to £30,000. I was against it then, the Treasury has always been against it, and I would not be surprised if the present Treasury Ministers were also against it. It does not make sense.
We all know that all that one gets out of the nonsense of excessive tax relief for housing investment is an increase in the price of houses. My hon. Friend made this clear when she pointed out that prices in the south-east are rising at 16 per cent. a year. First-time buyers need help to get on to the property ladder, but thereafter their needs can be dealt with quite adequately by the operation of the housing market.
It is easy to increase the limit for mortgage relief, but it is difficult to bring it down. It has some similarities with the problem of inflation. Inflation can rise easily. To bring it down requires painful experiences. So it will be in this case. People take out mortgages with 20 years in view and plan their expenditure accordingly. To bring about changes in their expectations causes much discomfort and even distress, so any relief that is given will be difficult to remove later.
7.30 pm
It is worse than that because many institutions are anxious to see people trading up or being overhoused. Only last weekend I saw an advertisement that offered people money to trade up as a good investment. People were being told that they should not be satisfied with the


house that they had when they could get something better; as long as they had a basic house partly paid for, they were being encouraged to think of buying a better house because of the investment opportunity that would create. One of the last things we want is that people should be overhoused when manufacturing industry is in such decline.

Mr. Gerald Bermingham: Does my right hon. Friend agree that if the housing market is to progress and more first-time buyers are to come in, more houses at the bottom of the purchasing scale are essential? If there were additional basic allowances for ordinary people in the south-east, Manchester or any other area, that would increase mobility in the rest of the market.

Mr. Sheldon: Of course, mobility is not helped by the present system. A very dear friend of mine moved from London to near where I live in the north-west. What he got for his modest house provided a magnificent house in the north-west. Now he needs to return to London. It is easy to make the transition from a modest house to a splendid house, but it is much more difficult to move the other way. In addition, the type of house that that family left originally is now well beyond its means. So mobility has not been made easier, although it is required because of the attractions of the south-east. People advocate greater movement between north and south, but movement is limited because of the changes made by the Government.
My hon. Friend the Member for Thurrock was right in saying that the Prime Minister is proceeding in this way because of Tory votes. Shortage of houses still remains a problem. We are on a treadmill where year by year house prices will rise as tax relief becomes more attractive. Let us consider the total amount that is spent—£5 billion to encourage people to live in houses that more than meet their needs. If that amount were spent on manufacturing industry it would provide an incentive of about £1,000 per worker per year. We must compare investment in the housing market with the incentives that are being denied to manufacturing industry.
We must also take account of the rate of increase in tax relief as an incentive to people to buy better houses. Only two years ago mortgage tax relief amounted to about £3·5 billion. Three months ago it was £4·5 billion. Now it is £5 billion. No doubt it will rise to £6 billion and £7 billion. At some stage a halt must be called because it will take a long time for the 20-year mortgages to work their way through the system. It is not a sensible use of resources to spend money in that way.

Mr. David Penhaligon: I have listened with interest to the two speeches on the amendment. My sympathies lie more with the hon. Member for Thurrock (Dr. McDonald), the official Opposition Front Bench spokesman, than with the right hon. Member for Ashton-under-Lyne (Mr. Sheldon). A serious problem is being drawn to the attention of the House. The hon. Lady said that the concession to upper rate taxpayers costs £1 billion a year. I wish that the figure was less.
I support a phased arrangement whereby tax relief would be restricted to the standard rate, but it is a peculiarity of our Parliament that we cannot argue that case. There may be logical reasons for that somewhere, but they have escaped me. It is a shame that we cannot arrange a debate about an amendment that we wish to put forward.
Although the alliance defends the principle of tax relief for mortgage payments, as we have made clear, some aspects of the present arrangement are totally indefensible. A person earning £14,000 a year may take on a mortgage. Indeed, we respect the advantage given to people by the current system. If that person gets promotion and earns £40,000 a year, what is the effect on his mortgage relief? Under the present arrangement the help given to him in hard cash terms, pound notes in his hand, more than doubles.
The Government may regard it as proper and reasonable that a man earning £40,000 a year should get twice as much help towards paying his mortgage as someone earning £14,000, but on grounds of decency and justice or any rational approach, I find that a distortion of reality, sense and good reason. Given the opportunity, we shall seek to change the tax relief system so that relief is restricted to the standard rate, recognising that the change will have to be phased because of the point made by the right hon. Member for Ashton-under-Lyne about mortgages covering a 20-year period.
I take issue with the right hon. Gentleman about his assertion that massive differences in house prices in the south-east compared with the north arise because of income tax relief. There are massive differences between the south-east and the north, as there are between the south-east and everywhere else. Sometimes I find the north-south argument difficult to understand. I was brought up to regard Exeter as being in the midlands and Bristol in the north. For economic arguments I regard myself as being in the north, but I do not accept that the differences in prices are purely and simply a reflection of the tax relief system, although that cannot help. The differences in prices are a reflection of other things which the debate on this amendment will not allow us to argue about now.
If tax relief were restricted to the standard rate there might be an argument for increasing the limit. On the other hand, if there were no change in the system there might be an argument for decreasing the tax relief limit. If it remains at £30,000 from now to infinity, and nothing remarkable happens to inflation, the amount will, in effect, be reduced as time goes on. The alliance objects to the system which gives the better off more assistance towards purchasing their homes.
Mortgage tax relief is not new. It has existed for a long time under different Governments. I ask the Minister how he and his Government can justify a system whereby, on the same mortgage, a man earning £40,000 a year receives more than twice the assistance received by a person who is earning £14,000 a year.

Mr. Bermingham: As a member of the Standing Committee that considered the Bill, I welcome the contribution from Liberal Benches tonight. It is more than we had from the SDP Benches in Committee. However, I shall not go over old matters.
I recall what was said in Committee. I know that Treasury Ministers railed and riled and poured scorn on Opposition Members of the Committee because we wanted to increase the basic rate tax relief on mortgages above the £30,000 limit.
I was somewhat amused, if not tickled, to read in The Guardian today that the Prime Minister has been reminded —I do not know whether it is the thought of having to retire to Dulwich—that ordinary human beings need to


live in houses. As a Member representing a northern constituency, I do not necessarily go along with the proposition that the housing problem is greater in the south of England. The problem is as great in certain suburban areas in the north as it is in the south. One can hardly buy a one-bedroom flat for £30,000 in London—not only in the posher areas, such as Belgravia and Eaton Square, but in areas such as Chalk Farm, Camden, and so on, where houses are being refurbished.
A person buying his first house or flat becomes part of the housing chain. Because of family needs, people sell and move to bigger homes. That releases another first-home property on the market. Increasingly, buying a property is out of the range of the ordinary man in the street. Not everybody in the City of London works in the commercial sector and earns £20,000 or £30,000 a year.
Let me give the example of a secretary, earning between £8,000 and £10,000 a year, and her husband—perhaps he is a manual worker or is in a semi-skilled occupation —who earns about the same. Probably, that couple can obtain a mortgage of only one and a half times their gross income. I am aware that building societies are scrambling to offer loans of two and a half times a couple's joint income, and so on. However, it is all very well to offer such a loan, but the potential strain on families at that level of borrowing is great. There is an enormous strain to meet the mortgage commitment if the wife or husband falls sick or if they seek to have a family, thereby losing one income.
Even with a basic tax relief of 29 per cent., a £30,000 mortgage is a considerable weight on the shoulders of such a family. Even if it bears interest of only 10 or 11 per cent., the repayments are about £3,000 a year—£60 a week—gross. Then the 29 per cent. is taken off. If my arithmetic is not fast enough and if I get the figures wrong, I am sure that hon. Gentlemen will assist me. The amount payable would be about £47 a week. That is before the capital repayment and rates are considered. An enormous strain is placed on a family whose joint income can be as low as £14,000 or £15,000 a year.
That is only one side of the coin. However, I am a realist. I accept that house prices rise as the years go by. I dealt with conveyancing matters when I practised as a solicitor. There is a tendency to calculate when giving advice. I am sure that hon. Members who are solicitors would agree. One calculates what the tax relief will be at 30 per cent., 40 per cent., and so on, on a £30,000 mortgage. One always arrives at a monthly cash flow figure — what a person can afford to pay per month towards his housing costs. There is an incentive, as a person's income rises, to look further up the market.
I disagree in part with what my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) said. One element—it is not a major element—that forces house prices up—

Mr. Robert Sheldon: Mortgage relief is only one aspect. There is the capital gains tax and the abolition of schedule A. It is those, together, that have made property for one's own residence purposes the most attractive investment that one can make, on a scale that is difficult to justify.

Mr. Bermingham: Either I have misunderstood my right hon. Friend or he has misunderstood me. I do not

disagree about the investment factor. I agree that housing has become an attractive investment proposition. Its track record since 1968 has shown that. At that time, there was a boom in house prices both in the north and south. In 1968, one could buy a semi-detached house for £3,000. By 1970, or 1971, the price had gone up to £4,000 or £5,000. By about 1973–74, the figure was approaching £7,000.

Mr. Tony Favell: Does the hon. Gentleman suggest that his party wants to make buying one's own home a less attractive proposition than it is now? In what way does the hon. Gentleman's party seek to make it less attractive?

Mr. Bermingham: I have known the hon. Gentleman in a professional capacity for many years. I am amazed at his almost immature — I say that as kindly as I can —approach. Of course we do not seek to dissuade people from bying houses. On the contrary, we seek to assist them to buy. What we are saying is that, in terms of capital gains tax, the purchase of a house over the past 18 years has undoubtedly been an attractive investment. It has kept ahead of inflation levels. In fact, at times, it has risen startingly higher. We saw that in the 1974 property boom and we saw it in some parts of the country in the late 1970s and early 1980s.
Although an aspect of capital gains tax has led to the escalation of house prices in certain parts of the country, I do not think that that is the primary reason for high prices. The reason is that most people want to improve their housing as the years go by and as their family needs increase.
There has been a scarcity factor in the housing market. That factor often commenced in the starter houses and escalated up the scale. Unless there is mobility in housing — availability of housing—so that people can go up, and unless there is a broad enough market—

Mr. Ian Gow: indicated assent.

Mr. Bermingham: The hon. Member for Eastbourne (Mr. Gow), who is a former housing Minister, nods—I hope in agreement with what I have said. Unless there is availability of housing, there is no way that prices can be kept under control. If there are only two nice, five-bedroom houses in a town and 40 people want to buy them, that will escalate the cost. If there are 40 houses, that will not escalate the cost.

Mr. Gow: I agree entirely with what the hon. Gentleman said about the supreme importance of improving mobility. Does the hon. Gentleman not understand that his party refuses to contemplate the form of the private rented sector and, notably, any removal or diminution of the twin evils of rent control and security of tenure? The failure of his party to accept that possibility of reform means that a great deal of property remains unused or underused. If that reform came about, that housing would be brought into use and would increase the stock of housing available.

Mr. Deputy Speaker (Sir Paul Dean): Order. I hope that the hon. Member will resist the temptation to get into a general debate on housing.

Mr. Bermingham: I never thought that I was going down that road. I was considering the taxation aspects. The taxation aspects are reflected in our housing policies. Perhaps the Treasury, with a little wisdom in its sack of knowledge, will bring a bit of pressure to bear. After all,


he who pays the piper usually calls the tune. I realise that if I were to reply to the hon. Member for Eastbourne I would trespass on the breadth of the debate. The hon. Gentleman and I have a fundamental disagreement on the philosophy behind who should rent and on what terms and conditions.
I agree that the rented sector is part of the general aspect, but it has been a decreasing sector for a number of years. Indeeed, I am told that the rented sector has been on the decline since before 1914. There must be a rented sector, and the quality of rented sector housing must be as high as possible, but perhaps that argument can be left to another day.
I return to mobility and scarcity, which come well within the scope and ambit of the amendment. If there is a shortage of housing, house prices escalate. That is as true at the top of the scale as it is at the bottom of the scale. One of the tragedies of the last few years has been the fall in the number of starter houses. In the late 1970s I was a member of a city council that tried the experiment of building for sale. It was a partnership idea, involving local authority land and local builders. Starter houses were, in a sense, only partly built. One or two rooms formed the basis of the house and rooms were added to it as families grew in size. It was an enormously popular scheme, but it was discouraged, and it was yet another aspect of starter housing that fell by the wayside.
If we increase the availability of houses, by means of starter housing for young people, builders will be provided with an incentive to provide the next stage. One might call it Barratt developments, mark 2, as opposed to Barratt developments, mark 1. Once again the purchaser must be able to meet the price.
I understand from what I read in the newspapers that the Prime Minister has begun to think about uprating. But I must never believe anything that I read in the newspapers, though they are usually told before the House of Commons is told. It is called the Lobby system. Let out the leak, to begin with, then firm it up with a couple of others, preferably by colleagues making speeches halfway round the country, and suddenly it becomes the official party policy of this or that party. That is what the present Government do, and they always seem to do it just before the summer recess so that hon. Members have no opportunity to comment on or criticise that policy. I may be over-suspicious but we are approaching the long recess and the mortgage question seems to be the first stage of such a policy.
If we were to assist young couples, the starter buyers, by increasing the relief for interest limit to £35,000 at the standard rate of income tax, we should stimulate the market. However, we could stimulate that market even more. The arithmetic is quite simple. My hon. Friend the Member for Thurrock (Dr. McDonald) said that the total amount of tax relief for higher rate taxpayers is £1 billion. If one is earning between £40,000 and £60,000 a year, I suppose that one can afford to spend a little more on housing.
The hon. Member for Truro (Mr. Penhaligon) rightly said that it is obscene that persons earning £40,000 a year are entitled to more tax relief than persons earning £14,000 a year. If we were to take away £1 billion from them, it would not mean much to them. During the last seven or eight years they have had enough incentives. They have been given everything. We should say to them, "Look, chaps, you really have had a good whack. Your top rate

of tax has been brought down, all the other little perks have been added in and you have done all right by this Conservative Government, so how about a genuine sacrifice? You are to lose tax relief at the top rate. You can have it only at the standard rate."
I can think where to put that £1 billion to help very many homeless people. What about the housing sector? If £1 billion were invested in housing many jobs and many fresh starts would be created. Perhaps the tide in the diminution of fresh starts could be turned again. If I may be allowed to make just a small plug, I represent a constituency which has a large glass industry and also a large brick works industry. Many jobs have been lost in both industries. If £1 billion were to be invested in the housing market, it might just produce a few jobs in St. Helens.

Mr. Deputy Speaker: Order. The hon. Gentleman is straying again. This is a comparatively narrow amendment dealing with relief for interest. He must address himself to the amendment.

Mr. Bermingham: I apologise if, by promoting a constituency interest, I have strayed from the amendment, but the point is made.
If our society cares about housing and about young people being able to buy their own homes, we should support the amendment, which is a tiny step down that road. If the newspaper reports are true and we have entered the season in which we learn by leak of future policy, let Treasury Ministers have the courage tonight to say, "Yes, we are going to raise the £30,000 level. It will come." Let them also have the courage to say that it will come for those who need it most, not for those who have the most.

The Financial Secretary to the Treasury (Mr. Norman Lamont): When the hon. Member for Thurrock (Dr. McDonald) was moving her amendment she explained the technical background to it. She made it quite clear that she accepts that the amendment does not make any sense, but she said that she had put it forward to initiate a discussion of the subject. She then made it clear that she had two objectives: first, to show that it was the policy and intention of the Labour party to phase out mortgage interest relief for those who pay income tax at above the basic rate, and, secondly, to increase the £30,000 limit for the basic rate taxpayer.
The hon. Lady began by quoting newspaper reports, although she quoted selectively from them. She did not quote all that The Guardian said about how wrong it would be to increase the £30,000 limit. She quoted a few newspaper reports that speculate about the intentions of my right hon. Friend the Prime Minister. The hon. Lady used the word "speculation." It is exactly that — pure speculation. It has no foundation in fact. My right hon. Friend the Prime Minister has always attached the highest possible political priority to increasing home ownershi:p. She takes enormous pride in the fact that home ownership is now at its highest level ever. It is in no way surprising —indeed it is wholly natural—that my right hon. Friend should always be concerned about the opportunities for young people to buy their own homes, but that is the beginning and end of the matter.
The Opposition's proposal is that the higher rate relief for mortgage interest should be withdrawn altogether. The hon. Lady quoted a figure of £1 billion, a figure that was


echoed by the hon. Member for St. Helens (Mr. Bermingham), who referred to the amendment directing £1 billion towards the construction industry. I ought to point out to the hon. Lady that £1 billion is the total cost of tax relief to the higher earnings group, above £20,000, but that is not the cost of the higher rate relief. That is £320 million. The £1 billion includes the basic rate element, so the resources released by the amendment would not be of the magnitude implied by the hon. Member for St. Helens, South. That does not affect the principle, but we should be clear about the arithmetic.
8 pm
The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) instanced the special position of housing within the tax system, not just by merit of mortgage interest relief, but by merit of capital gains tax. This long-standing practice was introduced when home ownership was at a lower level. Nobody could quarrel with the fact that housing enjoys a special position in our tax system.
The hon. Member for Truro (Mr. Penhaligon) did not make his position entirely clear. He did not come clean on whether higher rate mortgage interest relief should wither on the vine or whether there should be some other form of transitional relief. He seemed to agree with the Labour party, but at the same time implied that something could be said for leaving the system to wither on the vine. I should be grateful if the hon. Gentleman would clarify his position.

Mr. Penhaligon: I am sorry that I did not make my position clear. I said that the case for restricting mortgage interest relief to the standard rate on a phased system was overwhelming. Given that it is based on the standard rate, there is a case for adjusting the limit at least in line with inflation.

Mr. Lamont: Is it the policy of the alliance to phase out the higher rate relief?

Mr. Penhaligon: Yes.

Mr. Lamont: I am grateful for the fact that that has been put on the record.

Mr. Penhaligon: I said "phased".

Mr. Lamont: Phased, as distinct from withering on the vine. We all look forward to analysing that vague, rather nebulous and imprecise distinction. I do not think that I was alone in not being entirely clear about the position of the alliance. I am sure that 800,000 mortgagors who would be affected by the change advocated in the amendment, which was unequivocally supported by the hon. Gentleman, will note his remark.
The Government see nothing wrong in allowing relief at the higher rates of tax as the natural consequence of our progressive tax system. If tax relief on mortgages is to continue—the Opposition have promised to continue it —it is reasonable that it should apply to borrowers at all rates of tax.
Of course, housing has a privileged position. The hon. Gentleman compared it with that of industry. Mortgage interest tax relief is long standing, and in looking at it today we must take into account the fact that many people have entered into long-standing commitments that are of enormous financial importance to themselves. It is therefore difficult to justify any sudden change.
The Government have considered the position of mortgage interest relief in our tax system each year. In 1983 we increased the limit from £25,000 to £30,000. This year we cut the basic rate of tax and increased personal allowances. We felt that the mortgage interest relief limit should remain at its present level. We shall continue to review it in the future.
The hon. Member for Thurrock commented on house prices in the south-east. Obviously, they are increasing rapidly, although it is still true that even in the south-east the average first-time buyer is within the £30,000 limit, although only just within it. As with other tax relief limits, this limit is set for the country as a whole. It would be impossible to introduce differential relief limits according to regional variations. Recent interest rate reductions are the way in which we can help home ownership and the first-time buyer. The Government are seeking to do this by their economic policies, and by bringing about a situation in which interest rates are likely to fall.

Mr. Penhaligon: The Minister commented on the disadvantages of my proposal to the 700,000 people who benefit under the higher levels of relief. Could he explain, shortly and succinctly, to the other 28 million people in Britain who do not benefit from this why the Government defend allowing over twice as much relief to a person earning £40,000 a year as they allow to a person earning £14,000 a year?

Mr. Lamont: Because something is not available to everybody, it does not mean that it should not be available to anybody. For many years tax relief has been available to people with higher incomes, and they have been encouraged to borrow money to buy houses. It is a logical consequence of a progressive tax system that the greatest benefit of relief is available to those who pay higher rates of tax. Liberal Members do not seem to understand that when they discuss very small adjustments to the tax system.

Mr. Penhaligon: The Minister is saying clearly, for everyone to understand him, that he thinks it is rational, proper and reasonable that if a person in a specific house, and with a specific mortgage commitment, increases his salary from £14,000 to £40,000 a year, the Government should give him as cash in his hand twice as much relief as previously.

Mr. Lamont: It is extraordinary that the hon. Gentleman regards tax relief which allows somebody to keep more of his income as giving him cash in his hand. My instinctive reaction is that allowing a person to keep more of his own income is not giving him cash in hand. My presumption—it may be extraordinary—is that his income belongs to himself rather than to the state. Perhaps the hon. Gentleman finds that difficult to follow.

Mr. Hanley: Does my right hon. Friend agree that if the mythical constituent mentioned by the hon. Member for Truro (Mr. Penhaligon) raises his income from £14,000 to £40,000 a year he will pay greatly increased rates of tax? The net effect on that individual will be that he is paying more tax and is not receiving money.

Mr. Lamont: My hon. Friend is absolutely right, as he so often is. The Labour party says that it is the guardian of the poor and the lower paid. That is admirable, but Opposition Members seem to think that people on above average incomes have no rights and are of no importance


at all. Not content with wanting to increase their income tax, they want to increase their bills massively. In the past this country has suffered from too high a burden of taxation on above-average incomes and it has affected our overall economic performance.
There is a clear division on this matter between the two sides of the House.

Mr. Gow: As the House has the advantage of the presence of the solitary representative of the Liberal party, can my right hon. Friend confirm my understanding that the policy of the Liberal party—leaving aside the SDP—is to end the exemption of houses from relief from capital gains tax?

Mr. Lamont: I am afraid that I am not as informed as my hon. Friend is about this matter. I am therefore happy to give way to the hon. Member for Truro.

Mr. Penhaligon: The Conservatives of Eastbourne are famous for making up their own versions of Liberal policy. However, as the years pass by, the good people of Eastbourne have the sense to pick the real version. The hon. Member for Eastbourne (Mr. Gow) is at it again.

Mr. Lamont: One can hardly blame my hon. Friend the Member for Eastbourne (Mr. Gow) for trying to make up Liberal policy. It is difficult to work out Liberal policy, as we saw when I put a direct question to the hon. Gentleman. Even when he gives a straight answer, it is so vapid and foggy that much analysis is required to make sense of it.
This matter has perhaps been debated for long enough. There is a clear division between the two sides of the House. The 800,000 people who would be affected by this will notice not just what has been said by the Labour party, but what has been said by the hon. Member for Truro —that the alliance intends to remove relief from higher rate taxpayers.

Dr. McDonald: First, I thank the Financial Secretary for not misrepresenting the Labour party's views on maintaining and continuing mortgage tax relief when we take office. That, I fear, has been done in the past by Treasury Ministers and I am glad to note that he at least has not fallen into that trap. We have been at pains to overcome such misrepresentations and to make it clear that we intend to retain mortgage tax relief for standard rate taxpayers.
I was interested to note that the Financial Secretary seemed to move away a little from the original purpose of mortgage tax relief, which is, of course, to encourage and assist people in purchasing their homes. He seemed to regard it, as indeed it is so regarded by many higher rate taxpayers, as a means of lightening the tax burden. I could not help but notice that drift in the Financial Secretary's remarks.
We wish to limit mortgage tax relief to the standard rate because, in an area which is so sensitive and basic to most people's lives—the provision of a home for themselves and their families — help should be concentrated by Government where it is most needed. Higher rate taxpayers do not need to receive this relief at the higher rate. They usually manage to provide homes well above average for themselves and their families.
Therefore, it is not through any wish to attack the incomes of higher rate taxpayers in receipt of mortgage tax relief that we have moved the amendment; it is just that

we think that in the provision of housing, whether through the purchase of one's own home, through co-operative ownership schemes or through houses or flats to rent in the public sector, aid should he concentrated where it is most needed. Therefore, we should not continue the relief at the higher rate.
I take the Financial Secretary's point about the progressive nature of the tax system. Of course, people on higher incomes benefit more. That is almost inevitable with a progressive tax system. But there comes a point when that system can be broken by saying that such a relief is not justified at that level. It is an expensive relief for Government to administer and therefore help should be concentrated on those who most need it for something as important as housing.
As I have already said, and as the Financial Secretary understood, the amendment does not achieve our real purpose. It is merely a method of giving notice that the next Labour Government will carry out the intentions that I have just described. Therefore, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 23

EMPLOYEE SHARE SCHEMES: GENERAL AMENDMENTS

Mr. Hanley: I beg to move amendment No. 225, in page 20, line 12, at end insert—
'(7) In paragraph 1(5) of the 1984 Schedule, delete "before 1st July 1985".'.
I thank my right hon. Friend the Financial Secretary for paying me such a warm tribute by saying that I was so often right. I hope that he meant that I am always right and I hope that that opinion will extend to this amendment. I know that I was right when I greeted my right hon. Friend to the Committee on his appointment as Financial Secretary to the Treasury. I know that I was right to greet him warmly on his elevation to being a Privy Councillor. I hope that I can make three in a row. My right hon. Friend also knows that I moved six amendments in Committee and all six were accepted. In fact, one will be moved a little later by my right hon. Friend.
I wonder whether my right hon. Friend can help on this amendment, although the blame may lie elsewhere than in statute. The amendment is an attempt to redress an injustice to 155 people who have suffered from a bureaucratic mishap. All I ask is that the intention of the Finance Act 1984 be carried out for those employees.
I have written to my right. hon. Friend on the matter, as indeed has my hon. Friend the Member for Stratford-on-Avon (Mr. Howarth). We have both talked at length on the subject and feel that there is an injustice which can be altered quite simply.
8.15 pm
The injustice has been suffered by the employees of a company called BET. The company decided to introduce a share option scheme under section 38 of the Finance Act 1984. The scheme was approved by shareholders at the annual general meeting on 6 September 1984 and the first grant of options took place during the ensuing six weeks permitted by the regulations.
A formal application for approval of the scheme was submitted to the Inland Revenue, as required, before 1 January 1985, thus ensuring that the income tax


concessions that were available in the Act for such schemes should apply from the outset. I admit that that was a generous concession by the Revenue.
In return, the Inland Revenue requested three minor amendments to the draft rules, each of which was entirely formal in nature, prior to confirming its approval. Those rule amendments were carried out on 16 May 1985, but it was not appreciated at the time that the Inland Revenue needed to be notified. In fact, the time period for such notification was 1 July 1985. Consequently, the Inland Revenue did not finally give written approval to the scheme until the rather late date of 11 February 1986.
In the meantime, the company had made a second grant of options, believing that the scheme had been allowed, during the six weeks following the announcement of the company's results on 18 July 1985. BET claims that, mainly through having been inadequately advised by its consultants, the company did not appreciate at that time that, because the grant formally took place after 30 June 1985 and before Inland Revenue approval had been received, the options granted would not be eligible for the relevant income tax concessions. That was an expensive and tragic mistake to many employees who have worked extremely hard and who have fallen foul of a bureaucratic slip-up.
The employees were severely hit. There were 155 employees who took up nearly 2 million shares. The price payable on exercise of those options was £3·20 per share, compared with the current market value of approximately £4·40. That would mean that the employees' benefit would stand at about £2,300,000. The increase in market value makes it difficult to restore the expectations of the employees by further grants.
The Inland Revenue regards itself as powerless to rectify the position by treating its approval as retrospective, although, as we know, much of the scheme has been facilitated by retrospective legislation. The company maintains that the situation that I have described is an unreasonably severe consequence of a minor deficiency in the documentation relating to the introduction of the scheme, which was perhaps caused by bad advice or negligence.
However, the matter could be rectified by a simple amendment and that is exactly what I have moved. As matters stand, a substantial number of employees are losing a benefit which the Act intended them to have. In Committee on 24 May 1984 my right hon. Friend the Member for Croydon, Central (Mr. Moore), my right hon. Friend's predecessor, said that that intention was clear both to politicians and the Revenue. Therefore, I beg my right hon. Friend to look with sympathy on this case, as I know he has looked sympathetically on other cases since he has taken over his important position.

Mr. Norman Lamont: The amendment of my hon. Friend the Member for Richmond and Barnes (Mr. Hanley) addresses a detailed point about the status of options granted by a company in advance of the Inland Revenue approving its share option scheme under the provisions of the Finance Act 1984. In the case of options granted after such approval has been obtained which are exercised in accordance with section 38(3) and (4) of the 1984 Act, the option gain is free from income tax.
When the principal legislation was introduced, it was appreciated that the merits of the new scheme would probably result in many companies applying to establish schemes quickly and that there would be a serious risk that the Inland Revenue could not cope with all the approvals. Therefore, it was decided in Committee on the Finance Bill that the legislation should provide that options granted on or after 6 April 1984 but before 1 July 1985 under a scheme formally established by a company might be allowed to benefit from the favourable tax treatment. The provisos were that the scheme was submitted to the Inland Revenue for approval under the 1984 Act's provisions by 31 December 1984, and that it subsequently obtained such approval. Thus, where an established scheme was submitted for approval by the end of 1984, any options granted under it between 6 April 1984 and 30 June 1985 could qualify for the favourable tax treatment, provided that the scheme was subsequently approved. Only if approval was not forthcoming by the end of June 1985 would any options granted after that date be incapable of qualifying, and then only options granted between the end of June and the granting of approval.
I cannot accept the amendment, because it seeks to remove completely the limitation for this retrospective treatment—a limitation which was deliberately included in the original legislation. A realistic deadline for options granted to benefit from retrospective approval was placed in the transitional legislation to ensure that companies did not ignore the need to obtain approval from the Inland Revenue. Without such a limitation, companies could have continued to grant options while neglecting to take any action necessary to bring their scheme into line with statutory requirements. To avoid that, the legislation was drawn up to deny income tax relief for options granted under a scheme after 30 June 1985 unless the scheme had already been approved.
As the then Financial Secretary explained, the provisions allowed companies to design their schemes and put them into operation in the period before the Royal Assent and during an initial period thereafter while the Inland Revenue would have the heavy influx of new schemes. The provision was limited. It was not designed to have unlimited retrospective effect. Once the new legislation had been introduced and the initial surge of new schemes examined, the measure would be spent. As I explained earlier, the transitional legislation operated accordingly.
On the length of the transitional period, it is worth stressing that the statutory date, 1 July, was decided following consultation with representative bodies. At 1 July 1985, and in most cases well before that date, the Inland Revenue had fully examined all applications for Finance Act 1984 schemes drawn up during 1984 and notified the applicants of any points that needed attention. All schemes where the applicants responded satisfactorily and which were therefore capable of approval as at that date had been formally approved. The only instances where approval had not been given occurred where the applicants failed to respond to inquiries.
It is no doubt a relevant factor in the mostly successful outcome that the significance of the 1 July deadline was given considerable publicity. Apart from the debate in Committee, there was a Press release dated 19 June 1984 which I have given to my hon. Friend the Member for Richmond and Barnes. I have read it, and it gives full details of the transitional arrangements. In addition, the


Inland Revenue published explanatory notes to the legislation in December 1984 which included a chapter describing the transitional provisions. Just to underline the accuracy of the time limit, the general compliance with it and the effectiveness of the target, the Inland Revenue is aware of only two cases where options were mistakenly granted after 30 June 1985 before the company's scheme had been formally approved.
The share option scheme was given considerable publicity. Almost all the companies which adopted the scheme took steps to observe the requirements of the legislation and apparently did so without difficulty. At that time, many such schemes were introduced.
My hon. Friend the Member for Richmond and Barnes said that I accepted many of his amendments. All that I can say is, "You can't win 'em all." I cannot go along with my hon. Friend on this amendment. I have every sympathy for the people in the company that he mentioned, but the legislation was clear. It was given much publicity, including press handouts, and everything possible was done. It is the responsibility of professional advisers and of those who create such schemes to make themselves aware of the conditions under which the schemes are created. No special circumstances apply to the firm. I have every sympathy with the company and the employees, and perhaps the firm's professional advisers must consider their responsibilities in the matter. I cannot comment on that, but I must say to my hon. Friend that I cannot alter the legislation, which was already generous in its retrospective effect.

Mr. Hanley: I am grateful to my right hon. Friend the Financial Secretary for examining this case with such care. He has fully explained the publicity that was given to the various documents. He has also given me some booklets and leaflets which show clearly that notice was given to those who, perhaps, should have given more competent advice to their clients. I fully understand my right hon. Friend's position, although it is to be greatly regretted that those 155 people cannot benefit through a small amendment to the legislation which, as I said earlier, would give them exactly what the legislation intended.
The fact that formal approval had not been given, but that informal approval had been given many months before the cut-off date and that the three minor amendments had been achieved two months before the cut-off date, must be especially galling to them. I am sorry that legislation cannot give them what they deserve, but I shall pass on to those individuals my right hon. Friend's words, especially with regard to the responsibility of the advisers. I am grateful for the fact that he has taken such trouble over this matter. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 25

SAVINGS-RELATED SHARE OPTION SCHEMES

Mr. Fred Silvester: I beg to move amendment No. 204, in page 22, line 39, at end insert—
`(aa) if, before the date on which the alteration takes effect, a person who held such rights on 18th March 1986 ceases, in either of the circumstances set out in the said paragraph 10(1)(e), to hold an office or employment by virtue of which he was eligible to

participate in the scheme, then, so far as concerns the rights so held, the scheme may permit him to take advantage of the provision in question as if the alteration had been made immediately before he ceased to hold that office or employment; and'.
I wish to discuss a small matter, similar to that raised by my hon. Friend the Member for Richmond and Barnes (Mr. Hanley). It affects relatively few people, but it is based upon a more hopeful premise. The Government have wisely and sensibly embarked upon a change in the Finance Bill which will make it possible for people who have been thrown out of a company through no fault of their own because the company has been sold to another company to have the benefit of a share option scheme after one year rather than after three years. That is the gist of the matter. When the measure was announced, those likely to be affected by the Budget said, "Whoopee, that puts us on the right side of the law," only for it to dawn upon them that, alas, it would not come into effect until July or August and that they were caught between March and August. That happened to people in my constituency, who were employed by Fairey Engineering, which was a subsidiary of the Pearson Group. It has now been sold, and was caught being sold between March and August.
We made representations to my right hon. Friend the Financial Secretary, and he was generous in the amount of time and thought that he gave the matter. I pay tribute to my hon. Friend the Member for Stockport (Mr. Favell), who led the charge from his side of the constituency boundary, and to Pearson's lawyers, who were most generous in helping to draft the amendment.
The amendment holds water and it would make it possible for people to claim this additional benefit from the date of the Budget. I stress that those few people who have been caught unwittingly between the devil and the deep blue sea should be given this relief.

Mr. Favell: I rise to join my hon. Friend the Member for Manchester, Withington (Mr. Silvester) in commending the amendment to the House. I also thank him for his help in the battle. The amendment is relatively minor on a national scale, but to the employees of Fairey Engineering, who, through no fault of their own, have seen their company sold, it is a matter of great moment.
I pay tribute to the way in which Fairey Engineering has helped my hon. Friend the Member for Withington and me to bring this issue to the Government's attention. I should mention, in particular, Mr. Vincent Meadows, the works convenor at Fairey Engineering, and Mr. John Parsons, the managing director, who have worked hard together to ensure that fellow employees, who have been members of the share option scheme for only one year, can take advantage of it. As my hon. Friend the Member for Withington said, without the assistance of the Pearson Group plc, nothing would be possible. Although the Pearson Group has disposed of Fairey Engineering and no longer has any interest, the group has made it clear that it will do all that it can to assist the employees of its former subsidiary to exercise their options in the company. I pay tribute to the Pearson Group for that.
Perhaps it is because Fairey Engineering has the best brass band in the north of England that it has been able to make a noise that has reached the Treasury's ears. Mr. Nigel Rudd, the chairman of Williams Holdings plc, came here last night and, I am glad to say, assured me that


Fairey Engineering's brass band would receive the support of the Williams Holdings and would be as good and as great as ever, albeit under the new name of Williams Fairey Engineering Band. I am sure that that is of interest to the House and of interest, in particular, to hon. Members from the north.
It gives me great pleasure to commend the amendment to the House.

Mr. Norman Lamont: Clause 25 eases the provisions of the Finance Act 1980 governing approved savings-related share option schemes. At present, these schemes may not permit employees to exercise options which have been held for less than three years if the company or part of its business in which they are employed is sold from, or otherwise leaves, the group operating the scheme. The Bill abolishes that time limit. As a result, a company introducing a scheme will in future be able to permit the exercise of options in those circumstances. The company with an existing approved scheme will be able to alter its rules to include a new right for scheme participants to exercise their options in the same circumstances.
As drafted, the clause will become operative on receiving Royal Assent, enabling companies then to seek Revenue approval for alterations to their schemes to take advantage of the new provision. This follows the normal course that, except in very special circumstances, legislation should receive full debate and approval before implementation. In any consideration of the starting date for the clause it is necessary to note that before the new provisions can be used to confer a new right on any scheme participant the company must first change the rules of the scheme under which the option was granted to allow participants to take advantage of the facility.
In following the normal course, we had intended to give companies time to assess their position and to put in hand, if they wished, their own procedures for changing scheme rules. Companies which agreed to sell subsidiaries, or parts of businesses, in the meantime would have done so in full knowledge of the consequences for those holding options less than three years old.
We received many representations. Indeed, the noise of the brass band from Withington and Stockport reached our ears. Initially, as will be known, I was a little resistant to this idea, but after talking to my hon. Friends the Members for Manchester, Withington (Mr. Silvester) and for Stockport (Mr. Favell) on more than one occasion, I was persuaded that the timing was a bit accidental and unfortunate. Incidentally, this amendment is quite different from the previous one. Some companies' plans were publicised on 18 March, and it is proper that their scheme participants should be able to take advantage of the new provisions if the company operating the scheme decides to alter its rules retrospectively, as would be permitted by the amendment.
Budget day is the natural choice for a revised starting date for the amendment. Another relevant factor in support of that timing is one which I must stress and invite interested companies to note. Rights have to be exercised—if they are to be exercised at all—within six months of the subsidiary company or business having been sold, or otherwise leaving the group. The six-month period is of general application for the exercise of options under the

1980 legislation. Any scheme alteration that is intended to take advantage of the amendment must be made in time for that six-month rule to be observed.
Where, for example, a subsidiary company is sold at the end of March and the approved scheme is to be altered to enable the subsidiary's employees to exercise options under the scheme, the alterations will have to be made and approved by the Inland Revenue, and the options exercised, before the end of September. After a little initial reluctance, I have been wholly persuaded by my hon. Friends the Members for Withington and Stockport, and I commend the amendment to the House.

Amendment agreed to.

Clause 27

RELIEF FOR DONATIONS UNDER PAYROLL DEDUCTION SCHEME

Amendment made: No. 8, in page 26, line 14, leave out from 'and' to end of line 17 and insert
'which either contains provisions falling within subsection (3A)(a) below, or contains provisions falling within subsection (3A)(a) below and provisions falling within subsection (3A)(b) below.
(3A) The provisions are that—

(a) the employer is to pay sums withheld to a person (the agent) who is approved by the Board at the time they are withheld, and the agent is to pay them to a charity or charities;
(b) the employer is to pay sums withheld directly to a charity which (or charities each of which) is at the time the sums are withheld approved by the Board as an agent for the purpose of paying sums to other charities.'.—[Mr. Ian Stewart.]

Clause 28

PAYROLL DEDUCTION SCHEME: FURTHER PROVISIONS

Amendment made: No. 9, in page 27, line 6, at end insert—
`(bb) for, and with respect to, appeals to the Special Commissioners against the Board's refusal to grant, or their withdrawal of, approval of any scheme (or kind of scheme) or agent; '.—[Mr. Ian Stewart.]

Clause 29

DONATIONS BY COMPANIES TO CHARITIES ETC.

Amendment made: No. 10, in page 27, line 36, at end insert
'and in section 55(1) of the Taxes Act (certificates of deduction) after the words "Finance Act 1973" there shall be inserted "or section 29 of the Finance Act 1986".'—[Mr. Ian Stewart.]

Clause 31

CHARITIES: RESTRICTION OF TAX EXEMPTIONS

Amendments made: No. 11, in page 29, line 28, at end insert—
'(1A) In relation to a chargeable period of less than twelve months, subsection (1) above shall have effect as if the amount specified in paragraph (a) of that subsection were proportionately reduced.'.
No. 12, in page 30, line 20, after 'shall', insert
`to the extent that it does not exceed the sum originally invested or lent'.—[Mr. Ian Stewart.]

Schedule 7

CHARITIES: QUALIFYING EXPENDITURE, INVESTMENTS AND LOANS

Amendments made: No. 33, in page 116, line 36, after `1960' insert
'or section 25 of the Charities Act (Northern Ireland) 1964'.
No. 34, in page 117, line 4, leave out
'coming into force of section 67'
and insert 'passing'.
No. 35, in line 18, leave out 'that it' and insert
'on a claim made to them in that behalf, that the loan or other investment'.
No. 36, in line 33, at end insert
'or—
(d) any other loan as to which the Board are satisfied, on a claim made to them in that behalf, that the loan is made for the benefit of the charity and not for the avoidance of tax (whether by the charity or any other person)'.—[Mr. Ian Stewart.]

Clause 32

HIGHER RATE RELIEF FOR COVENANTED PAYMENTS

Amendments made: No. 13, in page 31, line 22, leave out from 'assessment)' to end of line 9 on page 32 and insert—

'(a) at the beginning there shall be inserted the words "Subject to subsection (1B) below"; and
(b) the words "and does not exceed £10,000 in any year of assessment" shall be omitted.

(2) After subsection (1A) of that section there shall be inserted the following subsections—
(1B) If at least £1,000 of an individual's income for any year of assessment consists of covenanted payments to charity which, in the hands of the charities receiving them, constitute income for which, by virtue of section 31 of the Finance Act 1986, relief under section 360(1) above is not available, so much of the individual's income as consists of those payments shall not be excluded from the operation of subsection (1) above by virtue of subsection (1A) above.
(1C) If, for any chargeable period of a charity,—

(a) the income of the charity includes two or more covenanted payments to charity, and
(b) only a part of the aggregate of those payments constitutes income for which, by virtue of section 31 of the Finance Act 1986, relief under section 360(1) above is not available,

each of the payments which make up the aggregate shall be treated for the purposes of subsection (1B) above as apportioned rateably between the part of the aggregate referred to in paragraph (b) above and the remainder."'

No. 14, in page 32, leave out lines 12 to 15.

No. 15, in page 32, leave out lines 27 and 28.—[Mr. Ian Stewart.]

Clause 33

DISCLOSURE OF INFORMATION TO CHARITY COMMISSIONERS

Amendments made: No. 16, in page 32, line 41, after 'be', insert 'or to have been'.

No. 17, in line 42, after 'be', insert 'or to have been'. —[Mr. Ian Stewart.]

Schedule 9

BUSINESS EXPANSION SCHEME

Mr. Norman Lamont: I beg to move amendment No. 50, in page 124, line 14, at end insert—
'(5A) In arriving at the value of any interest in land for the purposes of this paragraph—

(a) it shall be assumed that there is no source of mineral deposits in the land of a kind which it would be practicable to exploit by extracting them from underground otherwise than by means of opencast mining or quarrying; and
(b) any borehole on the land shall be disregarded if it was made in the course of oil exploration.'.

Mr. Deputy Speaker: With this it will be convenient to take Government amendments Nos. 72 to 80.

Mr. Lamont: I envy the Economic Secretary's speed in the progress of the amendments. I should be content simply to nod this amendment through, but I do not know whether the hon. Member for Birmingham, Hodge Hill (Mr. Davis) would be satisfied with that. Because points were raised in some detail in Committee, I felt that it would be right to amplify the proposed amendments, although I hope to do so as briefly as possible.
Amendment No. 50 concerns the restriction of building expansion scheme relief on investment in a company with a substantial holding of land and buildings. This restriction involves a test of whether more than half the net assets of a company are represented by land and buildings. If this test is failed, BES relief is restricted. The idea is that substantial holdings of land and buildings should provide an asset base on which finance can be raised and, therefore, BES relief is not needed.
Under the test, the value of any underground mineral workings would be taken into account, yet, because of the riskiness of this activity, the workings may not provide sufficient security on which to raise alternative finance. That point was drawn to my attention in Committee and I undertook to consider it. Having had the chance to do so, I think that an amendment to the rules is appropriate.
The purpose of amendment No. 50 is to exclude from the value of land and buildings in the test the value of minerals which would be extracted by underground workings. The value of any oil or gas is also to be excluded to prevent the oil exploration relief from being withdrawn as a result of the discovery of oil or gas. Any other value inherent in the land would continue to be counted in the ordinary way. At the same time, we are taking the opportunity to exclude from the test the value of any bore holes made in the course of oil exploration. Although we are advised that these are unlikely to have any intrinsic value, we thought it best to clarify the matter.
Amendments Nos. 72 to 80 merely extend the new oil exploration relief to Northern Ireland, for reasons which I hope are obvious.

Mr. Terry Davis: The Financial Secretary said that he envied his hon. Friend the Economic Secretary, who moved a series of amendments which went through on the nod. I, for my part, envied my hon. Friend the Member for Sedgefield (Mr. Blair) who was covering those amendments because he did not need to say anything or even find it necessary to rise from his seat. I intend to try to emulate my hon. Friend by quickly resuming my seat because we do not challenge the amendment.

Mr. Hanley: I sincerely thank my right hon. Friend the Financial Secretary for putting his mind to an amendment which I proposed in Committee. The amendment is just and will help to give to those who try hard to provide employment in a difficult industry encouragement and the profits to enable them to grow. The private mining industry would have been severely hurt were it not for this measure. I hope that it will flourish and will be an inspiration to British Coal in its dealings in the future.

Amendment agreed to.

Mr. Norman Lamont: I beg to move amendment No. 51, in page 124, line 35, at end insert—
`(9) Where a company has ceased to be a qualifying company in consequence of the operation of this paragraph, section 62(6) of Chapter II shall apply as if the relief was withdrawn in consequence of an event which occurred at the time when the company so ceased to be a qualifying company.'.

Mr. Deputy Speaker: With this it will be convenient to take Government amendments Nos. 52 to 55 and 61 to 71.

Mr. Lamont: One of the Bill's proposals is that relief can be withdrawn from BES shares where there is a rights issue and either the rights are sold or the BES shares fall in value as a result of rights being taken up. The amendment ensures that these rules apply equally where the rights are to acquire different classes of shares or debentures. This follows similar rules for capital gains tax.
The alternative basis of valuation for the purpose of the land and building restriction starts with the value of the land and buildings at the time of the share issue, adds on the purchase cost of any other land and buildings and any expenditure on improvement, and deducts any consideration received for any disposals. As the Bill is drafted, it is not clear whether the rule works properly when the consideration is received some time after a disposal. Amendments Nos. 52 and 53 remove any doubt. Amendment No. 54 corrects a drafting error.
On amendments Nos. 51 and 64, when BES relief is withdrawn, an assessment is made to collect the tax. This bears interest from a specified date. As the Bill is drafted, this date is not clearly specified where relief is withdrawn following a rights issue or where the land and building restriction comes into effect. These amendments make clear the date from which interest starts to run.
Under the general BES rules, a company is allowed to carry on some exluded activities provided they do not amount to a substantial part of the trade, which, as a rule of thumb, is taken to mean about 20 per cent. of the trade. Amendments Nos. 55 and 61 ensure that the company's excluded activities are added together when deciding whether they amount to a substantial amount of the trade.
Amendments Nos. 62, 63 and 65 to 67 make it clear that the various rules which apply in respect of shares on which BES relief has been given do not apply after all that relief has been withdrawn.

Mr. Bermingham: I am puzzled at times when rights issues become a disqualifying problem. I have raised this matter before and I do so again because rights issues are a good way of raising secondary capital. The method is often used by a company in its initial thrusting period when the initial investment has been used in the purchase of capital, plant and so on. I do not intend to oppose the amendment, although I warn the Government that I may oppose many other amendments.
I ask the Government once again to consider rights issues. Often these are the rights issues to existing shareholders. Perhaps the Financial Secretary will assure me that, when it is necessary for a company to move from phase one to phase two of its development, it will not be prejudiced under the business expansion scheme by disqualification as a result of the rights issue.

Mr. Lamont: The hon. Member for St. Helens, South (Mr. Bermingham) has made a fair point. There is, in a way, a bit of rough justice in the treatment of rights issues, although there is a purpose behind it. There is scope for people to use the BES in a way that is not intended.
As I understand it, the main purpose of the provision as drafted was to prevent a situation in which rights issues would be used to acquire different classes of shares and instruments such as debentures. Of course, a rights issue of an ordinary share might be a different matter. There is some merit in that argument. I shall look at this point, but I stress that I say that without any commitment. I have some sympathy with the hon. Gentleman's point. One must always bear in mind that the BES provides very generous tax relief, especially for high income earners, which can be compared to generous tax relief such as that on house purchase.

Mr. Bermingham: I think that the Financial Secretary knows my philosophical approach to the BES. I am especially concerned that companies which are subject to the BES may be forced to shrink as a result of the wording of this provision. Does the right hon. Gentleman agree that there is a way around this problem? Perhaps there could be an exemption where the shares are issued to existing shareholders for the purpose of further investment in the company, and that can be certified by accountants to the company or by the Department of Trade and Industry or even by Inland Revenue. I tender that as a first-thought solution to the problem which involves great difficulty and unfairness.

Mr. Lamont: I shall look into the matter. I am reminded that when I made my opening remarks in explaining the amendments I referred to a situation in which rights issues were at a discount. That is where the only problem arises. I do not think that I made that clear when I was responding to the hon. Member for St. Helens, South (Mr. Bermingham). This situation is a little rough and ready. I say without any commitment that I shall consider the hon. Gentleman's points.

Amendment agreed to.

Amendments made: No. 52, in page 124, line 46, leave out from 'consideration' to first 'of' in line 47 and insert 'for the disposal by the company'.
No. 53, in page 125, line 1, leave out 'on the grant' and insert
'for the grant by the company'.
No. 54, in page 125, line 8, leave out (b) and insert (c)
No. 55, in page 127, line 18, leave out `to any substantial extent of' and insert
'of one or more of the following activities if that activity amounts, or those activities when taken together amount, to a substantial part of the trade'.—[Mr. Norman Lamont.]

Mr. Norman Lamont: I beg to move amendment No. 56, in page 127, line 43, after 'Kingdom', insert—
(bb) throughout the relevant period the company is solely responsible for arranging the marketing of the services of its ships.'.

Mr. Deputy Speaker: With this it will be convenient to consider Government amendments Nos. 57 to 60.

Mr. Lamont: This year we are extending the business expansion scheme to companies engaged in ship chartering. The changes we propose are designed to ensure that the scheme is open just to companies actively engaged in chartering where there is some element of risk involved and that the benefits flow to British companies using British registered ships. For that reason, our proposals contain a number of conditions which must be satisfied if a company is to qualify under the scheme.
It has been put to us — the point was raised in Committee — that in one or two respects these conditions might impose unnecessary constraints. We have considered those points. The Inland Revenue has had useful discussions with the General Council of British Shipping. The amendments we propose here are designed to relax slightly the conditions where we think there is some scope.
One of the conditions is that ships may only be let out on charter for periods not exceeding 12 months. This is to ensure that the scheme is used for genuinely risky charters rather than for longer ones where the stream of income is steady and secure. In Committee I said that I would look at this again. We still think that the length of this limit is about right. But we have managed to find some scope for relaxation without reducing the element of risk.
Amendment No. 58 would allow the person chartering the ship—not the BES company—to have an option, or options, to extend the charter so as to make it run for a longer period than 12 months. This would allow extensions to be made in line with normal commercial needs but would ensure that the BES company could not minimise its risks by entering into long-term charter arrangements. In particular, this meets one of the concerns put to us by the GCBS. The amendment would also allow a new letting to be agreed during the life of the current letting, but not so as to fix the use of the ship for a period ending more than twelve months away.
As the rules are drafted, a company would have to meet the conditions in respect of all of its ships and charters. That goes further than the rules for other trades under the scheme, which can undertake some non-qualifying activities provided that they do not amount to a substantial part of its trade. We concluded that the same sort of flexibility ought to be available to ship chartering companies—for example, a company might already have charters which do not meet the conditions and so would have to wait until these are finished before the BES can be used. Amendment No. 57 would allow some non-qualifying charters provided that they do not amount to a substantial part of the trade.
It has also been put to us that BES companies would be put at a considerable disadvantage if they were unable to make use of some of the services of a specialist ship manager. It has been argued that obtaining crews would be difficult and that stores and repairs would be costly to obtain.
One suggestion is that the ban on the use of managing agents should be removed altogether. That was considered in Committee, and I made it clear that I saw difficulties in allowing a company to hand over the running of its ships totally to an agent because one would then have a tax relief which would be a financing measure, which would allow people just to invest in the assets. We have looked at this

point further, as we would not wish to force a BES company to operate in a commercially disadvantageous way. Therefore, we propose to allow a company to use an agent to undertake certain functions. These are what are known oin the trade as husbandry and they include the supply of crew and provisions.
But the company would retain responsibility for the commercial management of the ship — for example, bunkerage and the loading and unloading of cargo. Amendment No. 59 makes that change, and amendment No. 56 requires the BES company to be responsible for marketing the services of the ship, arranging charters. I think that that strikes a fair balance between what was advocated in Committee and what makes sense within the scheme.
Amendment No. 60 deals with the subject of lettings within a group. There is a condition that charters must be arms length's bargains with unconnected persons. That ensures that the extension is riot refused. The reasons for that are obvious. However, there is not the same possibility of abuse where the connected companies are all members of the same group and where the parent of the group is a company qualifying under the business expansion scheme, as all the companies would have to meet the qualifying conditions of the scheme. That point was raised in Committee and I undertook to bring forward an amendment to deal with it.

Dr. McDonald: We do not intend to oppose any of these amendments. We recognise that a number of them merely improve drafting and that some, as the Financial Secretary has made clear, tighten up the drafting. We consider some of these amendments, especially amendment Nos. 56 and 59, as anti-avoidance measures, so there is nothing to oppose here.

Amendment agreed to.

Amendments made: No. 57, in page 127, line 46, at end insert—
'but where any of the requirements mentioned in paragraphs (a) to (c) above are not satisfied in relation to any lettings of such ships, the trade shall not thereby be treated as failing to comply with this paragraph if those lettings and any other activity of a kind falling within paragraph 6(2) above do not, when taken together, amount to a substantial part of the trade.'.
No. 58, in page 128, line 3, leave out from 'provision' to end of line 5 and insert—
'is made at any time (whether in the lease or otherwise) for extending it beyond that period otherwise than at the option of the lessee;
(aa) during the period of the letting there is no provision in force (whether made in the lease or otherwise) for the grant of a new letting to end, otherwise than at the option of the lessee, more than twelve months after that provision is made.'.
No. 39, in page 128, line 11, leave out from beginning to end of line 12 and insert—
`(i) for taking, throughout the period of the charter, management decisions in relation to the ship, other than those of a kind generally regarded by persons engaged in trade of the kind in question as matters of husbandry; and'.
No. 60, in page 128, line 29, at end insert—
'but this sub-paragraph shall have effect, in relation to any letting between the company in question and its subsidiary, or between it and another company of which it is a subsidiary or between it and a company which is a subsidiary of the same company of which it is a subsidiary, as if paragraph (b) were omitted.'
No. 61, in page 128, line 36, after 'investment', insert—


'or of that activity and any other activity of a kind falling within paragraph 6(2) above, taken together'.
No. 62, in page 130, line 9, at end insert—
'and after the word "given", in each place, there shall be inserted the words "(and not withdrawn)".
No. 63, in page 130, line 10, after 'words', insert—
`(and not withdrawn)" there shall be inserted after the word "given" and the words'.

No. 64, in page 132, line 35, at end insert—
'Assessments for withdrawing relief
13A. In paragraph 14(2)(a), for the words "or 10(1)" there shall be substituted the words "10(1) or 16A".'.
No. 65, in page 133, line 27, at end insert—
'(2A) In sub-paragraph (3) after the word "given", in both places, there shall be inserted the words "(and not withdrawn)".'.
No. 66, in page 134, line 2, after 'given', insert 'and not withdrawn'.
No. 67, in page 134, line 13, after 'given', insert 'and not withdrawn'.
No. 68, in page 134, line 40, leave out 'ordinary shares in' and insert
'shares in or debentures of'.
No. 69, in page 134, line 44, after 'shares', insert 'or debentures'.
No. 70, in page 135, line 2, after 'shares', insert 'or debentures'.
No. 71, in page 135, line 4, after 'shares', insert 'or (as the case may be) debentures'.
No. 72, in page 137, line 20, after '1984', insert—
'or a Northern Ireland licence granted for the five year renewal term'.
No. 73, in page 137, line 20, after 'includes', insert 'in either case'.
No. 74, in page 137, line 23, after 'regulations', insert—
'or a Northern Ireland licence granted for the thirty year renewal term'.
No. 75, in page 137, line 24, after 'includes', insert 'in either case'.
No. 76, in page 137, line 26, after 'regulations', insert—
'or a Northern Ireland licence granted for the initial term'.
No. 77, in page 137, line 27, after 'includes', insert 'in either case'.
No. 78, in page 137, line 32, at end insert—
'or, in Northern Ireland, by the Department of Economic Development;
Northern Ireland licence" means a licence granted under the Petroleum (Production) Act (Northern Ireland) 1964 and incorporating the model clauses set out in Schedule 2 to the Petroleum Production (Licences) Regulations (Northern Ireland) 1965, and in relation to such a licence the references above to "the initial term", "the five year renewal term" and "the thirty year renewal term" shall be construed in accordance with Clause 2 of Schedule 2 to those regulations; and'.
No. 79, in page 138, line 12, leave out `(1)' and insert '(2)'.
No. 80, in page 138, line 14, at end insert—
'or under the Petroleum (Production) Act (Northern Ireland) 1964.'.—[Mr. Norman Lamont.]

Schedule 10

COMPANY RECONSTRUCTIONS

Amendment proposed: No. 81, in page 139, line 13, leave out from 'for' to end of line 14 and insert—
'the words from "any", in the second place where it occurs, to the end there shall be substituted "such apportionments of receipts, expenses, assets or liabilities shall be made as may be just."'.—[Mr. Norman Lamont.]

Mr. Bermingham: On a point of order, Mr. Deputy Speaker. It is a technical point of order. My point is that amendments cannot be discussed if they are moved formally. The amendment as it stands may go through but I would suggest, with the greatest respect, that it would seem to be fair that the next amendment or the group should then be formally moved. I know that it is a technical point, but it would give any hon. Member who particularly wants to speak on an amendment the right to do so.

Mr. Deputy Speaker: I am not quite sure which amendment the hon. Gentleman is speaking to. If he is speaking to an amendment which has been discussed with another amendment, he should speak on the amendment which was called first. Will the hon. Gentleman tell me which amendment he is referring to?

Mr. Bermingham: Without seeking to be discourteous, Mr. Deputy Speaker, I think that your learned Clerk appreciates my point. Amendment No. 81 has just been formally moved. It may have been bracketed for convenience in the order of selection with other matters, but when we come to amendment No. 82, which is the next one, it in turn has to be formally moved to enable an hon. Member to speak.

Mr. Deputy Speaker: The hon. Gentleman is perfectly in order to speak to amendment No. 81, together with other amendments which are grouped with it. Does he wish to do so?

Mr. Bermingham: All I seek to do in raising this point of order is to be utterly formal. I know that it may be boring to certain hon. Members, but I do not seek to worry about that at this stage.
One is setting a precedent. All that I am asking is that—

Mr. Deputy Speaker: We are on Government amendment No. 81, which is grouped with other amendments. Perhaps I dealt with it in too telescoped a manner, but the group includes amendment No 82. The hon. Gentleman is in order to speak to it, and I shall call him now if he wishes to do so.

Mr. Bermingham: I seek not to speak on any particular amendment. I am saying that a matter of principle is involved. After amendment No. 81 has been agreed to, we then move on to Government amendments Nos. 82 to 87. If the Government wish to move them formally, I have no objection to it, but it sets a precedent. It is just sloppiness. We have had enough problems on the Bill as it is. I seek merely to have each amendment put in turn.

Mr. Deputy Speaker: It is a well-established procedure. The grouping of amendments is on the Amendment Paper, which the hon. Gentleman no doubt has. It has been in the No Lobby for some time. I do not wish to rush the House, but it is customary, if a Minister moves an amendment


formally, for me to see whether anyone rises. No one rose. I do not want to embarrass the hon. Gentleman. Again, I invite him to speak on any of this group of amendments. If he wishes to do so, I shall be glad to hear him.

Mr. Bermingham: I am grateful to you, Mr. Deputy Speaker. I merely wanted to say this. Amendment No. 146 is the last of the group. I wanted to ask the Minister why it was necessary to table the amendment. It is as simple as that.

9 pm

Mr. Norman Lamont: Amendment No. 146 is consequential on amendment No. 81. Amendment No. 81 slightly changes the wording of a provision that enables apportionments to be made where the predecessor company ceases to carry on only part of its trade and continues to carry on the other part. The amendment replaces the reference to "necessary apportionment" by a reference to
such apportionments … as may be just.

Mr. Bermingham: What worries me is when a large conglomerate with some subsidiaries decides to fold one to the advantage of another. Who would determine what was necessary and what was not?

Mr. Lamont: As I said, the question of necessity will not arise, but obviously there are ways in which the loans—which are the object of the hon. Gentleman's question—can be apportioned between different companies to continue the losses that are to be available for tax relief purposes. Amendment No. 81 is a relieving provision. It does not make it more restrictive. I would be treading in difficult territory if I attempted to define
apportionments … as may be just,
but those are the words that are written into the Bill.

Mr. Bermingham: I thank the Minister for that reply. Perhaps he will see the point that I am driving at. By the very apportionment of loans between companies A, B and C, it is possible to shift tax losses, or reliefs, perhaps to the most profitable sector, to the detriment of the Revenue. I hope that the Revenue will keep that matter very much under observation.

Mr. Lamont: Of course we will. The purpose of this series of amendments is to restrict the relief that has been available. It is also designed to discourage the double counting of relief in those situations.

Amendment agreed to.

Amendments made: No. 82, in page 139, line 23, leave out 'and'.

No. 83, in line 24, after 'successor' insert—
'and which, in a case where the predecessor was the predecessor on a previous application of section 252 above, were not by virtue of section 252(8) above apportioned to a trade carried on by the company which was the successor on that application'.

No. 84, in line 34, leave out 'and'.

No. 85, in line 35, after 'successor', insert—
'and which in a case where the predecessor was the predecessor on a previous application of section 252 above, were not by virtue of section 252(8) above apportioned to a trade carried on by the company which was the successor on that application'.

No. 86, in page 140, line 16, leave out
'attributable to the trade and'.

No. 87, in line 24, at end insert—
'3. The following shall be inserted after sub-paragraph (5) of paragraph 17 of Schedule 9 to the Finance Act 1981 (restriction of carry forward of unused relief)—

(5A) Where an amount for which a company is entitled to relief by virtue of section 252(3) of the Taxes Act (company reconstructions: successor's entitlement to carry forward predecessor's loss) is reduced by virtue of section 252(3A) of that Act, the part of the amount in respect of which, by reason of the reduction, there is no relief shall for the purposes of this paragraph be taken to consist—

(a) first of capital allowances for accounting periods of the predecessor ending not earlier than 14th November 1980;
(b) next of relief under this Part of this Schedule, taking relief in respect of a later period of account before relief in respect of an earlier one;
(c) next of losses incurred in the trade in accounting periods of the predecessor ending not earlier than 14th November 1980 (calculated without regard to capital allowances or relief falling within paragraphs (a) and (b) above) and including any losses treated under section 254(5) of the Taxes Act as incurred in such accounting periods;: and
(d) lastly of other losses, capital allowances and reliefs.

(5B) In sub-paragraph (5A) above "the predecessor" has the same meaning as, in section 252 of the Taxes Act.".'.—[Mr. Norman Lamont.]

Schedule 12

PENSION SCHEME SURPLUSES

Amendment proposed: No. 89, in page 148, line 2. leave out 'Where' and insert
'Subject to paragraph 6A(4) below, where'.—[Mr. Ian Stewart.]

Mr. Deputy Speaker: With this it will be convenient to take Government amendments Nos. 91, 92, 94 to 97 and 101.

Dr. McDonald: I should like the Minister to confirm that amendment Nos. 89 and 91 are designed to improve the drafting, and that amendment Nos. 96 to 98 and 101 are technical amendments. Amendment No. 92 enables the Inland Revenue to ask an actuary to explain his valuation of a pension fund's assets and liabilities, and to provide background information. The amendment also lays down procedures for negotiations between pension scheme administrators and the Revenue. Why does that amendment appear at this stage? It seems to be obvious that such procedures should be in place.

Mr. Ian Stewart: The hon. Lady has interpreted the amendments correctly. The answer to her question about why the amendment has been included at such a relatively late stage is that the procedure for which the amendment provides is likely to be unusual. It was therefore not one of the first aspects of the scheme that came to mind However, I agree that once one alights on the point it is obvious. I am glad that we have been able to include it.

Amendment agreed to.

Dr. McDonald: I beg to move amendment No. 90, in, page 148, line 31, at end insert
'except that the method prescribed in paragraph (a) shall only be a permitted way of reducing the excess if the other ways set down in paragraphs (b) to (f) are to be utilised to the fullest extent as is reasonable in all the circumstances.'.

Mr. Deputy Speaker: With this it will be convenient to consider amendment No. 93, in page 148, line 38, at end insert—
'The Board shall not approve any proposals which include repayments under sub-paragraph 3(a) above unless the


administrator has provided in the submission explanations which in the view of the Board satisfactorily explain why the other permitted ways set out in sub-paragraphs 3(b),(c), (d) , (e) and (f) cannot reasonably be used, or further used, to reduce the excess'.

Dr. McDonald: The purpose of the amendment is to make the repayment to the employer of pension fund surpluses the last resort. This will effectively force the employer to adopt other ways of eliminating surplus such as suspending contributions or meeting benefits.
In essence, contributions to pension funds by employers are part of the pay package and it is suggested that, other things being equal, they are used to depress the level of current pay. It seems correct therefore that the surplus belongs effectively to the present and past generations of employees, allowing that a raid on the fund does not inevitably recognise that.
The issue of surpluses is not only that the tax benefits of pension funds might have been overused, but that the resources of employers for enhancing pay deals has been incorrectly allocated. Obviously the best way—and this is what we want to see happen—to deal with surpluses would be to enhance the benefits, as this would redress both the erstwhile excess use of the tax efficient regime and the fact that employee's pay has been unduly restricted.
The withholding of employers' contributions should logically be preferred to withdrawals from the fund as these are more likely to be taken into account both by employees and employers in the determination of the amount and shape of remuneration packages. It enhances the opportunity of trade unions negotiating better terms than simply being able to point to a refund which the employer could say belongs to the past rather than to the current generation of employees. Additionally, the fact that the withholding of contributions is more likely to be spread over a number of years reinforces the link between a continuing negotiation on pay and conditions and the available resources.
The amendment is in two parts: the addition at line 31, and the consequential addition to line 38 which gives to the board the obligation not to approve proposals which give unreasonable priority to other means of dealing with surplus pension fund. We recognise that the amendment is not entirely satisfactory because it equally gives precedence over "(a)" to permitted ways under "(f)" as well as "(b)" and "(d)" although "(f)" is the undefined category. We are moving the amendment to ensure that where there is a surplus employees should benefit and that the repayment of any surplus to the employer should be the last item that is taken into consideration.

Mr. Ian Stewart: The hon. Member for Thurrock (Dr. McDonald) has raised a matter which we discussed in a slightly different context in Committee in relation to the pension provisions in the Bill. She has candidly explained her amendments, saying that they might not be perfect. Treasury Ministers never complain that Opposition amendments are perhaps less than perfect and it would be churlish of me to make any such suggestion. I shall take the point for its substance, not its detail, and I hope that she would like me to proceed in that way.
However one defined the provisions of the type the hon. Lady has described, it would be difficult if a requirement were placed on the Inland Revenue to judge whether

certain matters had been adequately fulfilled by the trustees before the Inland Revenue was willing or able to sanction repayment or refund to the company. Purely regarding mechanism, I must repeat that the Inland Revenue is not a suitable body to exercise judgmental decisions about the adequacy of pensions or how money is distributed by trustees of pension fund schemes.
As I explained in Committee, there are three main options. The first is that an excessive surplus in a pension fund scheme can be reduced by increasing benefits for the members of the scheme. The second is that the contributions of the employer and employee can be reduced. Indeed, they can be fully suspended for a period, if need be, as a means of causing an immediate recalculation of the commitments of the scheme which would do away with the whole or part of the excess over-funding. The third option is a refund to the company.
The hon. Lady's amendments are designed to ensure that the third option was not available, in effect, until one or other or both of the other two options had been exhausted. I understand and have some sympathy with her feelings that schemes should try to do as well as they can for their members as beneficiaries, and that it may in some cases be suitable both for the company as an employer and for the members of the scheme as employees not to have to pay any money into the pension scheme for a period. Obviously, that is the case.
However, I must stop at the idea that in no circumstances should a company be allowed to have a refund unless it has used the scope of those two alternatives to the limit. A reason for that is that if a pension fund on valuation is shown to be underfunded, there will be a requirement on the employer to top it up to a level where it will meet the commitments it faces. There were cases in the 1970s when, because of a negative return on gilt edged securities, the level of the stock market and the difficulty of calculating future income streams from companies in which pension funds were invested, some trustees found that their schemes were insufficiently funded to meet their commitments. Therefore, companies often made substantial extra payments into those schemes to meet the shortfall.
It seems wrong that if in better times the pension scheme recovers and finds with hindsight that the extra money paid in to meet the emergency is not needed the company should not be able to obtain a refund of the extra money that it had to pay in. Given that there are such circumstances, it would be wrong to accept the amendments, although I understand the spirit in which the hon. Lady moved them.

Sir Brandon Rhys Williams: As my hon. Friend has been kind enough to refer to the speech which I made earlier and has touched upon his difficulties, as a Treasury Minister, in trying to make policies in the area of occupational pensions, I should like to take the opportunity of drawing his attention to the remarks made this year by Professor Moore in his presidential address to the Institute of Actuaries.
Professor Moore took the trouble to emphasise that there does not appear to be any Government Department with overall control of policy governing these schemes. He pointed out that it is partly an Inland Revenue matter and partly a Department of Health and Social Security matter as well as a matter for the Department of Employment, the


Occupational Pensions Board and the Government Actuary. I consider that the Treasury must have an overall interest in this because of the important part that these schemes play in striking a balance between consumption and saving in the economy.
What my hon. Friend has said seems to reinforce my suggestion that there should be a serious and early inter-departmental study of the way in which these schemes are operating, the tax provision and aspects of the law connected with occupational pension schemes. In that way the Government can make known a policy which is satisfactory to those who put money in and also to those who rely on the money that comes out of these schemes at the end of their careers.

Mr. Ian Stewart: I remind my hon. Friend the Member for Kensington (Sir B. Rhys Williams) that I shall be conferring with my right hon. and hon. Friends in the Department of Health and Social Security about these matters. In a recent survey of opinion relating to pension funds it was suggested that almost two-thirds of the schemes would probably choose to improve benefits rather than the other methods. We welcome that.

Dr. McDonald: I am glad that the Minister is prepared to consider the issues which have been raised in the amendments I tabled.
I accept the Minister's point regarding employers paying an extra contribution when there was a negative return on investments during the 1970s. Nevertheless, the rights of employees as contributors to such schemes are being overlooked. When there is a surplus, their interests should be properly taken into account. They are, after all, deferring pay in order to receive a pension in the future. Part of an employee's pay goes into a pension fund and it is time that proper weight was given to this when we consider the disposal of pension fund surpluses.
I accept that the Board of Inland Revenue may not he the best possible mechanism to use. Tabling this amendment has given us the opportunity to air these important issues. Much thinking still needs to be done about pension schemes and the way in which they operate to ensure that they benefit those who contribute.
We wish to highlight that importance. I am glad that the Government will consider this matter, and we on this side of the House will certainly give a great deal of attention to these issues. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 12

PENSION SCHEME SURPLUSES

Amendments made: No. 91, in page 148, line 34, leave out 'If' and insert
'Subject to paragraph 6A(4) below, if.
No. 92, in page 148, line 38, at end insert—
'6A.—(1) Where a valuation has been produced under paragraph 5 above, the Board may serve on the administrator of the scheme a notice requiring him to furnish the Board, within a prescribed period, with such particulars relating to the valuation as may be specified in the notice.
(2) Where a certificate has been given under paragraph 5 above, the Board may serve on the administrator of the scheme a notice requiring him to produce to the Board, within a prescribed period, a written valuation such as is mentioned in paragraph 5(2) above.
(3) Where a valuation has been produced in compliance with a notice served under sub-paragraph (2) above, the

Board may serve on the administrator of the scheme a further notice requiring him to furnish the board, within a prescribed period, with such particulars relating to the valuation as may be specified in the notice.
(4) Where a notice is served on the administrator of a scheme under sub-paragraph (1) or (2) above, paragraph 6(1) and (5) above shall cease to apply.
(5) In section 98 of the Taxes Management Act 1970 the following shall be inserted at the end of the first column of the Table—
Paragraph 6A of Schedule 12 to the Finance Act 1986".
6B. —(1) Where particulars have been furnished under paragraph 6A above, or a valuation has been produced under that paragraph, the Board shall, within a prescribed period, serve on the administrator of the scheme a notice—

(a) stating that they accept the valuation produced under paragraph 5 or, as the case may be, 6A above, or
(b) stating that they do not accept the valuation so produced, and specifying their estimate of the value of the liabilities of the scheme at the relevant time and their estimate of the value of the assets held for the purposes of the scheme at that time.

(2) For the purposes of sub-paragraph (1)(b) above, the relevant time is the time specified in the valuation produced under paragraph 5 or 6A above as the time by reference to which the values of the assets and liabilities are determined.
(3) Where—

(a) in a case falling within sub-paragraph (1)(a) above, the valuation shows that the value of the assets exceeds the value of the liabilities by a percentage which is more than the prescribed maximum, or
(b) in a case falling within sub-paragraph (1)(b) above, the value of the assets as estimated by the Board exceeds the value of the liabilities as so estimated by a percentage which is more than the prescribed maximum,

the administrator of the scheme shall within a prescribed period submit to the Board for their approval proposals which comply with paragraph 6(2) to (4) above.
(4) If the administrator of the scheme fails to submit proposals to the Board within the period mentioned in sub-paragraph (3) above, or if proposals submitted to them within that period are not approved by the Board within a further prescribed period, paragraph 8 below shall apply.'.

No. 94, in page 148, line 40, after '6(1)' insert 'or 6B(3)'.

No. 95, in page 148, line 41, after '6(5)' insert 'or 6B(4)'.

No. 96, in page 149, line 9, after 'specified' insert—
(a)
No. 97, in page 149, line 10, after 'above' insert—
', or (b) where a valuation has been produced under paragraph 6A above, in that valuation,'.
No. 98, in page 149, at end insert—
'(3A) Sub-paragraphs (3B) to (3E) below shall apply where a percentage has been so specified, securities are transfered in the relevant period, and the transferor or transferee is such that, if he became entitled to any interest on them, exemption could be allowed under section 21(2) of the Finance Act 1970.
(3B) Paragraph 32(1) and (2) of Schedule 23 to the Finance Act 1985 (accrued income scheme) shall not apply.
(3C) Where, in consequence of sub-paragraph (3B) above, section 73(2)(a) or (3)(b) of the 1985 Act applies, the sum concerned shall be treated as reduced by an amount equal to the specified percentage of itself.
(3D) Where, in consequence of sub-paragraph (3B) above, section 73(2)(6) or (3)(a) of the 1985 Act applies, the relief concerned shall be treated as reduced by an amount equal to the specified percentage of itself. (3E) For the purposes of section 74(5) of the 1985 Act, the amount of interest falling to be reduced by the amount of the allowance shall be treated as the amount found after applying section 21(2) of the Finance Act 1970.
(3F) In sub-paragraphs (3A)) to (3E) above expressions which also appear in Chapter IV of Part II of the 1985 Act have the same meanings as in that Chapter.'.
No. 100, in page 149, line 27, leave out 'sub-paragraph (3) above' and insert 'this paragraph'.
No. 101, in page 149, line 32, at end insert—
'9.—(1) The Board may make regulations providing that an appeal may be brought against a notice under paragraph 6B(1)(b) above as if it were notice of the decision of the Board on a claim made by the administrator of the scheme concerned.
(2) Regulations under this paragraph may include—

(a) provision that bringing an appeal shall suspend the operation of paragraph 6B(3) and (4) above;
(b) other provisions consequential on the provision that an appeal may be brought (including provisions modifying this Part of this Schedule).

'subsection (1A)(which was inserted by the Finance Act 1985 and enables the Board to make regulations requiring societies to account for amounts representing income tax on certain sums) shall have effect and be deemed always to have had effect with the insertion after the words "in accordance with the regulations" of the words "(including sums paid or credited before the beginning of the year but not previously brought into account under subsection (1) above or this subsection)".
(2) In subsection (2) of that section'.

As my right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin) has tabled an amendment to amendment No. 18, I shall introduce the amendment briefly so that I can listen to his comments.

Amendment No. 18 clarifies a technical point arising from the Income Tax (Building Societies) Regulations 1986, which were laid by the Board of Inland Revenue last March under powers conferred by section 40 of the Finance Act 1985. They set out the detailed rules for the new composite rate scheme for building societies which came into force earlier this year.

Doubts have been expressed about the validity of the regulations. The Government's legal advice has been and still is that the power conferred by last year's legislation is adequate and that the regulations are validly made. To avoid prolonged uncertainty, however, I am proposing the amendment to make it clear once and for all that section 40 of the Finance Act 1985 achieves the intended result.

Mr. Patrick Jenkin: I beg to move amendment (a) to the proposed amendment, in line 6, leave out 'brought into account' and insert 'charged to tax'.
I am grateful to my hon. Friend the Economic Secretary to the Treasury for explaining the purpose of Government amendment No. 18. I hasten to say that some of the criticism about the amendment is to my mind misconceived. There is only one issue on which it is right to question the Treasury Bench — the issue of double taxation, or the raising of additional revenue by subjecting the same stream of income of building societies to taxation twice over.
I agree with my hon. Friend about retrospective legislation. It is perfectly legitimate to correct a potential misdrafting of a power in an earlier Finance Act to restore the law to what was intended. Nor do I accept that there is anything improper in trying to make unnecessary legal proceedings which are intended to show that the regulations are ultra vires.
The only question is whether the Government, when shifting from the previous to the new system of taxing interest on deposits, are instituting double taxation. I should like to emphasise the Chancellor's original intention when he wanted to put the building societies on

(3) The power to make regulations under this paragraph shall be exercisable by statutory instrument subject to annulment in pursuance of a resolution of the House of Commons.'.—[Mr. Ian Stewart.]

Clause 47

BUILDING SOCIETIES

Mr. Ian Stewart: I beg to move amendment No. 18, in page 42, line 41, leave out 'in subsection (2)' and insert the same basis as the banks in regard to payment of interest. In his Budget statement on 19 March 1985, he said:
On 6 April, the banks will move over to the composite rate system for the payment of tax on bank interest. I now need to legislate to put the corresponding composite rate payments by building societies on a similar footing, starting next year.
This is the most important sentence of all:
This will not produce any additional revenue." —[Official Report, 19 March 1985; Vol. 75, c. 797.]
It is no secret, because it has been widely commented upon in the press and I understand that there was an item about it on the radio this morning, that some societies, notably the Woolwich building society and the Leeds Permanent building society have complained that, contrary to the Chancellor's intention, there is substantial extra revenue, and they are having to pay it. The Woolwich has estimated that the provisions will cost it £65 million. I have seen it suggested that the extra burden on the entire building society movement may be in excess of £400 million.
We must ask how that lies with the Chancellor's intention that there should be no additional revenue. I think that I should explain how it arises. I shall take the example of the Woolwich building society, which has been most assiduous in ensuring that people understand its case. We are talking of a composite rate tax which is charged on interest paid to depositors in building societies, which is then deducted by the societies when they make interest payments to depositors, and which then has to be handed over to the Revenue.
In the old system, that tax was deducted by the societies when the interest was paid to the depositors and an amount was subsequently paid over to the Inland Revenue based on the interest paid in the society's accounting year ending in the tax year in question, sometimes called the basis year. In January of this year the Woolwich building society paid about £138 million to the Inland Revenue—this was the tax for the tax year 1985–86—based on the interest paid to depositors in the 12-month accounting period to 30 September 1985. Had the system remained unchanged I understand that there would be no dispute


whatever between the Revenue and the society that the payment last January discharged the society's liability for the full tax year 1985–86, that is, to 5 April 1986.
Now that the system has changed, that is where the problem arises. The purpose of the change, which no one challenges, is to secure that tax in future should be paid quarterly in arrear on the actual payments made by the society to its depositors, and these payments will be made at the end of February, May, and November in each year. However, there is a transitional problem involved in moving from the old to the new system.
I would remind my hon. Friend that when this happened to the banks—and it happened a year earlier—the simple solution was taken of dropping out a year. No attempt was made to tax any interest twice. When the system moved from the preceding year basis to the actual basis, the banks simply had one year's interest dropped out of the system.
With the building societies, the Treasury has chosen to adopt a different tactic. The regulations, to which my hon. Friend referred, took the device of deeming some of the interest that had been paid to have been paid later than the dates on which it was actually paid and then to take that interest and tax it under the new system even though—this is the point that the societies make, to which I am bound to say I have not seen a convincing answer—it has already been covered by the tax paid under the old system.
My hon. Friend in his discussions with the society says that what he is doing is bringing forward the date of the society's liability to hand over the tax due. What the regulation does—and this is the point where my hon. Friend may be misdirecting himself—in the case of the Woolwich is to take the interest payments for the period 1 October 1985 to 28 February 1986, even though all basic rate income tax liability upon them has been fully discharged by the payment made last January, and deems them to have been made at a later date for the purpose of taxing them again.
By any normal interpretation of the words, that is double taxation. I ask my hon. Friend to bear in mind that, although the tax is collected vicariously from the building societies, it is in fact a tax upon building society investors in respect of the interest received by the investors. On the occasion of the first payment of tax, the investors duly received the appropriate credit, namely, the discharge in full of their basic rate income tax liability on the interest. On the occasion of the second taxation which the transitional provisions now impose, the second interest payment, of course, being entirely fictitious, the investors get no extra credit. This is, therefore, extra taxation.
I call in aid the fact that, in order to support amendment No. 18, the Treasury tabled a Ways and Means resolution, because of course it is raising extra tax. Without the Ways and Means resolution, it would have no power to do this. The House considered that on 8 July.
Where does this leave us? The Inland Revenue, for reasons that may well be imagined, instructed the draftsman to effect the transition in such a way as to defeat the Chancellor's expressed intention that
This will not produce any additional revenue.
The way that the draftsman has done that is by using the words, found in line 6,
not previously brought into account.
That will allow the Revenue to claim, in the case of the Woolwich, that the interest that it paid for the period

between 13 September and 28 February this year has not been brought into account arid so can be taxed further by the deeming system under the new arrangements.
9.30 pm
That is wholly misconceived and it is entirely wrong in principle. The principle of taxation has been clear for many years. In the well-known case of Fry v. The Burmah Corporation in 1930, the judge said
You do not tax the years by which you measure; you tax the year in which you tax"—
in this case 1985–86—
and measure by the years to which you refer.
In consequence of the general principle of income tax law, the payments of tax made by the Woolwich and all other building societies on or at 1 January this year represented tax on all the interest received by their investors during the whole of the year of assessment ending 5 April 1986. Any attempt to bring some of those interest payments back into charge a second time is double taxation; yet that is precisely the effect of the words "brought into account" in the amendment. It effectively subjects that income to tax twice over at a cost to the Woolwich of £65 million.
Is that really my hon. Friend's intention? It seems to sit uneasily alongside the expressed intention of my right hon. Friend the Chancellor of the Exchequer in the Budget last year. He has assured me that it is not his intention, but I can equally assure him that the words of amendment No. 18 mean that that will happen. I and my right hon. and learned Friend the Member for Dover (Mr. Rees), IA, ho has considerably more experience in these matters than I have, and my hon. Friend the Member for Beaconsfield (Mr. Smith) have sought to remove those offending words "brought into account" and instead insert the words "charged to tax".
Those five months of interest have been charged to tax and, as I understand it, the Treasury does not dispute that. In his letter to the Woolwich of 11 March, my hon. Friend the Economic Secretary wrote:
We agree that the payment of tax made by the Society at the beginning of this year [1986] satisfied its liability for the 1985–86 tax year.
That appears to be common ground. They should not be taxed again, and our amendment will ensure that there is no double taxation; that my right hon. Friend the Chancellor's intention of no extra revenue is achieved; and that the Woolwich Equitable building society does not have to find an extra £65 million on top of the tax that it has already paid.
It is the job of the House to see that the Inland Revenue does not, in the words of yet another former Treasury Minister, my noble Friend Lord Bruce-Gardyne writing in the Sunday Telegraph this week, indulge
in two bites at the self-same cherry.
Without sub-amendment (a) that is precisely what the Government's amendment will do. With it, we shall avoid having two bites at the cherry.

Mr. Michael Meadowcroft: Appearing in unaccustomed garb as a Treasury spokesman, I am encouraged by being on the same side of the argument as the distinguished Members whose names are attached to the secondary amendment, namely, the right hon. Member for Wanstead and Woodford (Mr. Jenkin), the right hon. and learned Member for Dover (Mr. Rees) and the hon. Member for Beaconsfield (Mr. Smith). The problem


affects not only the Woolwich but particularly in my case the Leeds Permanent which finds itself in exactly the same uncomfortable position.
When a Government change the basis for assessing income tax two dangers arise. One is that some items will be taxed twice, and the other is that during the transition the new tax may fall more heavily upon some taxpayers than others even though equal taxable amounts are involved, usually because of different dates of accounting. That is happening in this case. Both dangers are present in the amendment that has been proposed by the Treasury Minister.
The amendment is based on the view that the taxpayer has to bear the transitional cost. Surely that is a reversal of previous Government practice. For instance, when PAYE was introduced, the Exchequer bore the cost of the transitional period. We are not talking about small amounts. For building societies the cost will be between £500 million and £600 million.
I want to use the Leeds Permanent building society to give an example of the effects of the Government amendment. Up to now the Leeds Permanent has paid income tax on 1 January every year to discharge its liability up to 5 April. Under the new scheme some liability will have to be met at 1 October because the Leeds Permanent accounting year ends on 30 September. Therefore, the amount which had previously been taxed up to 5 April will become the basis for a second, duplicated tax liability under the new scheme.
As the right hon. Member for Wanstead and Woodford said, the amendment will create in effect a new six-month liability. I am aware that if things progress normally for building societies the actual cash will not be paid over. However, the point is that the new six-month liability will hang over the head of the building society in the event of the tax account being finally squared off. As I understand it, it is analogous to an individual with a private telephone paying the telephone rent in advance. Normally he could claim a rebate if he ceased to have the telephone, but under the Government scheme he would still be liable for the amount that had been paid in advance.
Because of their legal basis, building societies cannot take the same risk as an individual in regard to a small amount, such as telephone rental. Therefore, what had previously been a reserve on a building society's balance sheet will become a liability. The Leeds Permanent, for example, will have to sacrifice some £74 million of reserves. For the individual investor in the Leeds Permanent that is equal to a reduction in reserve backing of £31. The whole sum is equal to a quarter of the society's total reserves. It represents a fall in the society's reserve ratio of just over 1 per cent.
As the right hon. Member for Wanstead and Woodford said, unfairness is being perpetrated on certain building societies. It depends capriciously upon the accounting year of each society. For instance, the Halifax, the largest building society in the world, with an accounting year ending on 31 January, will escape most of the double taxation.
It is important to point out that none of us wishes to terrify investors in building societies because their reserves are massive and well able to cope. I am sure that the right hon. Member for Wanstead and Woodford would want to make that point about the Woolwich. We wish to avoid

any sensational reporting of the possible effect of the double taxation. Nevertheless, I should have thought that the large number of investors in the Leeds Permanent and the Woolwich would cause the Government to think again.
The Government should accept the amendment proposed by the right hon. Member for Wanstead and Woodford, otherwise there will be few courses of action open to them. One would be for them to take on the cost of the transitional period themselves. That would enable the change to come into effect without its being unfair to some societies.
Another aspect is important. Despite vigorous representations to the Treasury, including those of my hon. Friend the Member for Colne Valley (Mr. Wainwright), who would have spoken tonight had he not been in America with a Select Committee— that is a salutary reason why I am performing in a less adequate way than he would have done—there has not been a response that the societies regard as adequate.
The Leeds Permanent and the Woolwich have commenced a High Court action to seek to have the relevant statutory instruments declared ultra vires. Yet Government amendment No. 18 will pre-empt that court action by giving explicit powers to the Government to make a statutory instrument. That suggests that the Government feel vulnerable to the court action in process, and that that amounts to retrospective taxation.
It is unfair for the Government to make the building societies bear the cost of the transition. If they must do so, it is absolutely crucial that it be done in a manner that affects all building societies equally, which is not the case under the present system. I hope that, if the House divides, hon. Members will support the secondary amendment.

Mr. Tim Smith: My name appears in support of amendment (a) to Government amendment No. 18. Sometimes when we consider taxation, people say that it is just a technical matter. This is a technical amendment. On the other hand, £65 million worth of tax is at stake for the Woolwich building society. A substantial amount is also involved for the Leeds Permanent building society. It is a technical matter. On the other hand, a substantial amount of revenue is at stake.
I think that my hon. Friend the Economic Secretary to the Treasury is aware that I have taken an interest in the matter for some time. A few months ago, he kindly agreed to see Mr. Cumming of the Woolwich building society to discuss it. I do not want to enter into a debate about the merits of that. I was encouraged by the fact that my right hon. and learned Friend the Member for Dover (Mr. Rees), who is an expert in such matters, felt that substituting the words "charged to tax" for the words "brought into account" would put the matter beyond doubt.
I hope that it will be possible, if the Woolwich wishes to do so, to challenge the matter in the courts and for the courts to be able to determine whether there is double taxation. Although I am an accountant, I do not feel qualified to comment on that. I am not a tax specialist. I think that the Woolwich should be given that opportunity. That is why I support amendment (a).

Dr. McDonald: I support the amendment moved by the right hon. Member for Wanstead and Woodford (Mr. Jenkin). From the extent to which I have considered this


complex matter and the advice that I have received not only from the Woolwich but from the Building Societies Association, I believe that there could be an element of double taxation involved in the way in which the regulations which govern the transitional period for the change and the way in which the composite rate of taxes is charged to building societies are framed. A figure of £65 million has been cited for the Woolwich. I think that it is about £40 million net. The overall figure for building societies over the next three years, beginning with this year, is about £450 million.
As the story unfolded, I could not help but wonder whether the Government, having lost various possible sources of revenue this year, such as the sale of water authorities, might have thought that it could gain more revenue over the next two or three years by this measure. I am sure that that is not the case—that there is some misunderstanding with the regulations or that the regulations have been ill conceived so that they impose the burden of double taxation which is quite unfair. That did not happen to the banks when the same tax regime was imposed on them. It is unfair that this should happen to the building societies.
There are two further problems. I understand that the matter has been discussed for a long time between the Economy Secretary to the Treasury and the Building Societies Association and the Leeds Permanent and Woolwich building societies separately. Last year the Building Societies Association had many discussions with the Inland Revenue. It made representations to, and had meetings with, Treasury Ministers. The council of the association recorded its grave concern about the effect of the transitional arrangements, but it concluded that the point had been pursued as far as possible.
9.45 pm
In pursuing the point with the Treasury, the problem that faces the Building Societies Association is that this affects building societies unequally. The accounting periods and the dates for the end of the accounting periods differ from one building society to another. Some building societies are little affected by the change. Others — in particular, the Leeds and the Woolwich building societies which have long accounting periods that finish at the end of September—are particularly hard hit by the double taxation element in the transitional provisions.
Therefore, I understand why it was difficult for the Building Societies Association to pursue this matter to the limit. The Economic Secretary knows that the Leeds and the Woolwich building societies were due to pursue it through the courts by means of a judicial review. They had applied for leave, leave had been granted, and proceedings were due to commence on 15 July. They fear that, if passed, the Government's amendment will preclude the possibility of pursuing the matter in the courts. They regard it as entirely unfair that the Government should have tabled this rather hasty amendment which precludes them from pursuing their action to any real effect.
In order to clarify the issue and to rule out, once and for all, the possibility of double taxation during the transitional period, I hope that the Economic Secretary will accept the amendment of the right hon. Member for Wanstead and Woodford. It would clarify the point and leave the Woolwich and the Leeds building societies to pay the right amount of tax due in the transitional period, but they would not have to pay double that amount. I hope

that the Economic Secretary will accept the amendment. If he merely gives an assurance that double taxation will not be imposed, that will not be sufficient. What stands as part of the Bill when it becomes law is, as the Economic Secretary knows, what is significant, not what is said by way of comment on the meaning of amendments during a debate. By accepting this amendment, any injustice that is caused to building societies during the transitional period will be entirely avoided.

Mr. Ian Stewart: I shall try to respond to all the points that have been raised. I appreciated the balanced manner in which my right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin) introduced his amendment more than I have appreciated some of the comments on the subject that have been aired in the last few days.
My right hon. Friend suggested that some of the criticism was misconceived. Apart from retrospection, I hope to deal with the legal question before coming to the substance of the timing of the taxation.
I agree with my right hon. Friend that to introduce in the amendment words which ensure that a provision in last year's Finance Bill has the import that was intended is not retrospective legislation. He asked me about the point of a Ways and Means resolution. I asked exactly the same question, and I was told that if anybody had any doubt about it, it could conceivably require a Ways and Means resolution. The fact that the Government did not have any doubt about it did not seem to matter, but I bow to legal advice on that.

Mr. Patrick Jenkin: With the greatest respect, that does not dispose of the argument. The fact that whether an additional tax is being levied is in doubt, and the fact that my hon. Friend was advised that to put the matter beyond doubt he should have a Ways and Means resolution suggests that there is a prima facie case that there is an additional tax. Perhaps my hon. Friend should address himself to that.

Mr. Stewart: I note what my right hon. Friend says, but I do not accept that our amendment enlarges the ability of the Revenue, through regulations, to raise tax. Nevertheless, because there is a widening of scope, which in theory could enable regulations to be introduced of a wider form than might have been possible before, a Ways and Means resolution is apparently required. I only say what the position is as I am advised. However, I would not rely on that point.
In addition to the fact that the amendment makes sure that the section in last year's Finance Act operates as was intended, it was known at the time how the regulations should be formulated. That was widely discussed with the Building Societies Association. Although detailed provisions could be introduced into any Finance Bill saying that regulations shall provide A, B, C, D, all the way through to Z, if the basis and substance of the regulations are already known, there is a correspondingly lesser need to spell out so much in detail. The point on detail has now been raised, and that is why we are introducing it.
My hon. Friend the Member for Beaconsfield (Mr. Smith) touched on the legal question, as did other hon. Members. The purpose of the amendment is purely to ensure that the regulations as promulgated are within the


vires of the power in last year's Finance Act to make them. It is not related to the content of the regulations on other grounds.
I have been told by a senior officer of one of the societies involved that the Government would be wrong to suppose that by means of the amendment we would be protecting ourselves from scrutiny of the regulations by the courts. I accept what I am told, but the amendment is directly addressed to the relationship between the section in last year's Finance Act and the regulations that follow.
Let me come to the substance and the claim of my right hon. Friend the Member for Wanstead and Woodford of double taxation. My first point on that is that the whole system of the transition has been designed to bring in, following the words of my right hon. Friend the Chancellor, which my right hon. Friend the Member for Wanstead and Woodford quoted, the same amount of money to the Revenue in 1986–87 as would have been brought in if there had been no change in existing practice. As far as I know, that is what the system will achieve. There is no question of this provision, through the regulations, increasing revenue to the Exchequer this year. It merely accelerates the payments made by some societies. The hon. Member for Thurrock (Dr. McDonald) pointed out that not all societies are affected equally; it depends on their year end.
If the Woolwich or, for example, the Leeds Permanent building society has, say, £60 million involved in the period between the end of its financial year and the end of the fiscal year, that amount would fall out of tax altogether if it were not for these provisions. That tax, although applicable to interest and dividends paid, would not be accounted for. It has been said that if we stated "charged to tax", instead of "brought into account", that would solve the problem for the Woolwich. It might do, although I do not know whether it would, but it would deprive the Revenue of a substantial sum. I do not know what the figure is exactly, but we are talking about hundreds and millions of pounds. I said that it "might" rather than that it "would", because we are talking, not about the society's tax, but about a tax on the investment income of depositors. There is a difference between the tax that a society or company pays itself, and a tax that is accounted in respect of interest paid. There is, indeed, a crucial difference.
In the case of the banks, there has not been such a scheme before, and so no comparison can be drawn. The money was paid gross to the recipients, and they paid income tax through their own assessments. Let us suppose that the tax regime of a building society, such as the Woolwich, had ceased — without going into these transitional arrangements — to be done through the composite rate of tax at the end of September 1985, and that gross payments had been introduced from that date. The amount of tax payable by the Woolwich in 1985–86 would have been identical, but there would have been income tax to pay on interest and dividends from October to March by investors and members. That money would have had to be paid to the Revenue.
The fact that a composite rate tax is being used means that it is collected on behalf of those investors and depositors, and subsequently paid to the Revenue. If the existing system had continued that would have been the amount of tax payable in relation to composite rate tax

during the fiscal year 1986–87. We have had to do a bit of catching up. In order to put the building societies on a footing with the banks, with quarterly payments, they will have a rather smaller time lag between the time of collecting the composite rate and the time that it is paid.
Clearly, different societies will be affected differently. The longer the period before the end of the fiscal year that a society has its own year end, the more it has to catch up. The Woolwich and the Leeds Permanent building societies are having to catch up more, because their year end at 30 September is much earlier than that of the bulk of building societies, at 31 December.
The new scheme will merely provide, in the case of a 30 September society, that in the fiscal year 1986–87 the tax for which it accounts at the composite rate of tax on investments and deposits will be not only for the 12 months from October 1985 to September 1986, which it normally would have been under the old system, but for the five extra months to February 1987. Of course, I accept that this means—

It being Ten o'clock, the debate stood adjourned.

It being Ten o'clock, MR. SPEAKER proceeded to put forthwith the Question which he was directed by paragraph (1) of Standing Order 19A (Questions on Voting of Estimates &amp;c.) to put at that hour.

ESTIMATES 1986–87

Resolved,
That a further sum not exceeding £44,636,349,000 be granted to Her Majesty out of the Consolidated Fund to complete or defray the charges for the service of the year ending on 31st March 1987, as set out in House of Commons Papers Nos. 259, 269, 284 and 439.

Bill ordered to be brought in upon the foregoing Resolution, upon the Resolutions [24 June and 9 July] relating to Estimates 1986–87, and upon the Resolution [10 July] relating to Supplementary Estimates 1986–87, by the Chairman of Ways and Means, the Chancellor of the Exchequer, Mr. John MacGregor, Mr. Norman Lamont, Mr. Ian Stewart and Mr. Peter Brooke.

CONSOLIDATED FUND (APPROPRIATION) BILL

Mr. Norman Lamont accordingly presented a Bill to apply a sum out of the Consolidated Fund to the service of the year ending on 31 March 1987, to appropriate the supplies granted in this Session of Parliament, and to repeal certain Consolidated Fund and Appropriation Acts. And the same was read the First time; and ordered to be read a Second time tomorrow and to be printed. [Bill 211.]

BUSINESS OF THE HOUSE

Ordered,
That, at this day's sitting, the Motion relating to the Channel Tunnel Bill may be proceeded with, though opposed, until any hour.—[Mr. Cope.]

Finance Bill

Not amended in the Committee and as amended (in the Standing Committee), again considered.

Mr. Ian Stewart: I was dealing with the difficult technical question of the composite rate tax payments during the fiscal year 1986–87 in relation to the building societies, whose affairs we have been discussing. I do not


deny that during the fiscal year 1986–87 they would need to account for the tax on interest and dividends of more than 12 months. Twelve of those months would have come into account in the ordinary way because that is how the old scheme operated. In addition, to catch up, tax must be paid for the subsequent months at the end of the fiscal year 1986–87. The problem with the Woolwich and other 30 September societies is that they have enjoyed a considerable advantage over other societies because of the difference between their year end and the end of the fiscal year. On average, they have had a delay of between 10 and 11 months in handing over the composite rate tax. To catch up with the others and to bring those societies into line with banks the delay has been reduced to between three and four months. Obviously, the societies are therefore required to pay a greater amount of composite rate tax to catch up time during the transition period. We have introduced transitional arrangements so that this is spread over a period. The transitional relief is more generous the longer the time before the end of the fiscal year that the society's financial year ends.
This does not affect the amount of tax collected. It merely affects the timing. In 1986–87 the later months of that fiscal year are added to the normal period when composite rate tax would have been collected under the old system.

Mr. Patrick Jenkin: My hon. Friend appears to have conceded two points. The first is that undoubtedly extra taxation will be paid in the years 1986–87, and also in 1987–88 under the spreading arrangements. This will bring in revenue to the Treasury greater than that which would have been received from the societies had there been no change in the system. Therefore, in respect of those two years, this is clearly contrary to the intentions which my right hon. Friend the Chancellor expressed to the House last year in his Budget statement.
Secondly, my hon. Friend seems to have conceded firmly that, although payments made in January by the societies discharged their liability in full for the fiscal year 1985–86, they will have to pay more tax on interest which they have paid in the last five months of that year. Why is that not double taxation?

Mr. Stewart: The answer is, very simply, because it is a catching-up process. They have had a longer lag in passing over composite rate tax to the Revenue than most of their competitors, and when they have to catch up they have further to go. That is why they have to pay over more during 1986–87. It is not double taxation, it is merely that they have had to pay tax in respect of a longer period for the fiscal year 1986–87 than they would if the old system had continued. Of course it is uncomfortable for them, but I repeat what I said earlier, that there is no increase in the estimated yield from composite rate tax during this current fiscal year over the previous year. The whole of the transitional arrangement and the move to the new quarterly payments is based on the undertaking that my right hon. Friend the Chancellor gave.
It does not bring extra tax to the Revenue. Because of the timing of the quarterly payments, the amount of flow into the Revenue during the fiscal year 1986–87 will, we calculate, be, as near as possible, equivalent to what it would have been if the old system had continued. All that happens is that some of those payments are made earlier than they otherwise would have been. In the case of

societies such as the Woolwich, it is earlier by a greater amount because its financial year ended substantially earlier than that of its competitors. Therefore, there is no double taxation, and I hope that my right hon. Friend will accept that.

Mr. Jenkin: It would greatly help me if my hon. Friend could reassure the House on the point made by my hon. Friend the Member for Beaconsfield (Mr. Smith) and the hon. Member for Thurrock (Dr. McDonald), that there is nothing in the Government's amendment that will preclude the societies, if they so wish, from pursuing their case in the courts on the ground that it is double taxation. My hon. Friend may say that they are wrong and that they will lose. However, if he could reassure me that that opportunity will remain open and that it is not his intention to close it off, I would feel a little happier.

Mr. Stewart: I can only give my right hon. Friend the same assurance as I gave to my hon. Friend the Member for Beaconsfield. The amendment addresses itself purely to the connection between the clause in the Finance Act 1985 and the regulations. It does not address itself to the substance of the regulations, and I am advised by one of the societies that it is contemplating further action in relation to the substance.
Clearly I could not advise any taxpayers that they could or should challenge the law or the regulations on any particular points. However, I can say that I do not believe that it amounts to double taxation, and I am advised that one of the parties which considers itself to be aggrieved by it is contemplating a different kind of action, which may or may not follow.

Mr. Jenkin: My hon. Friend is clearly not going to accept my amendment but, I think, is leaving it open to the societies to pursue this in the courts. It would be wrong of me to try to press this to a Division, although I am tempted to do so. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment No. 18 agreed to.

Orders of the Day — Schedule 13

MINERAL EXTRACTION: THE NEW CODE OF RELIEFS

Amendments made: No. 102, in page 151, leave out lines 18–29.

No. 103, in page 157, line 12, after 'assets', insert
'is disposed of or otherwise'.
No. 104, in page 157, line 17, after second 'the', insert
'disposal or, as the case may be'.

No. 105, in page 157, line 18, at end insert—
'(1A) If, at any time after a mineral asset has been acquired by any person, it begins to be used (by him or any other person) in a way which constitutes development but is neither existing permitted development nor development for the purposes of a trade of mineral extraction carried on by him, the asset shall be treated as having permanently ceased, immediately before that time, to be used by him for the purposes of that trade; and for the purposes of this sub-paragraph, "existing permitted development" means—

(a) development which, prior to the acquisition, had been or had begun to be lawfully carried out; and
(b) any other development for which planning permission is granted by a development order made as a general order and in force at the time of the acquisition;

and sub-paragraph (3) of paragraph 16 below applies for the purposes of this sub-paragraph as it applies for the purposes of sub-paragraph (2) of that paragraph.'

No. 106, in page 157, leave out lines 35 to 37.

No. 107, in page 159, line 4, at end insert 'disposal or'. No. 108, in page 162, line 14, leave out from 'Where' to second `a'.—[Mr. Norman Lamont.]

Orders of the Day — Clause 56

AGRICULTURAL LAND AND BUILDINGS

Mr. Harry Cohen: I beg to move amendment No. 19, in page 50, line 32, leave out from '1986' to end of line 39.
I am pleased to move this amendment and I am grateful to Mr. Speaker for inserting it in his selection of amedments. Amendment No. 19 seeks to delete the definition of "husbandry" in clause 56 which
includes any method of intensive rearing of livestock or fish on a commercial basis for the production of food for human consumption.
My amendment seeks to delete those words because they refer to intensive farming methods. I have taken expert opinion, and I am advised that those involved in intensive farming methods will get tax allowance benefits as a result of the insertion of those words in the clause.
I looked up the definition of the word "husbandry" in Harrap's dictionary in the Library. It refers to the
rearing of animals on a farm.
The definition also states:
to look after carefully/not to waste … resources".
In the context of the good use of resources, that implies care for the animals' health and welfare. Much present-day intensive husbandry does not do that. Animals are denied very basic freedoms—to stand up, lie down with ease, turn around, walk and mix with their own kind. The Government are providing financial inducements to take away those freedoms and encourage intensive farming methods. The insertion of those words in the Bill is another such inducement.
Among the people who will benefit are those who operate battery cages. Those cages measure approximately 18 in × 20 in, and house five laying hens, each hen having a wingspan of about 32 inches. It is an offence under the Protection of Birds Act 1954 to keep a bird in a cage where it cannot stretch its wings properly, but that does not apply to poultry. In addition, the hens cannot indulge in other natural behaviour such as nesting, dust bathing and scratching at the earth. Instead, they stand on wire mesh in their controlled environment housing, and never see the light of day. As the Farm Animal Welfare Council said,
the extreme confinement in a physically barren environment denies or seriously restricts the birds' freedom to express natural patterns of behaviour. The birds may be subjected to chronic discomfort.
Those who do that will benefit under the clause as drafted.
Those who use veal crates will also benefit. Veal calves are kept in appalling conditions, in solitary wooden crates, in which bedding is denied. The shed is kept in semidarkness. The calves are fed an unnatural diet: a high fat, low iron milk mixture, solely for the purpose of producing white meat.
The Parliamentary Secretary to the Ministry of Agriculture, Fisheries and Food said in 1983 that her welfare code for cattle would get rid of the crate, but it has not. In that same year, Compassion in World Farming, to which I pay tribute for the work that it does, lost a test case in the courts although it showed that some 600 calves were

chained by the neck and unable to exercise or even turn round. They could not stretch out their limbs when lying down, had no straw to lie on and were fed on an all-liquid diet devoid of fibre, which is essential to ruminant animals. Although the organisation produced that evidence, it lost in court because the code is not enforceable under the law.
Those who keep pigs in dire and unnatural conditions will also benefit. Straight after birth, the pigs are put into a dark box on a concrete floor with possibly no separate dunging area. The sows are ill-treated throughout their 16-week pregnancy in dry sow stalls or tether stalls. The dry sow stall is a cage with metal bars which is just large enough to hold one sow. In this cage the sow stands on concrete unable to take more than one step forward or one back. The sows are generally tethered by a girth strap or chain. I produce one here to show to the House as an example of the type of horrendous monstrosity that is used. I have the authority of Mr. Speaker to produce it tonight and I thank him for allowing me to show the House this terrible object. Some 2,000 sows are tethered under these conditions. I would not even wish to see the worst Tory Member wearing such a girth and it should not be used on a pregnant sow.
10.15 pm
The sows are kept in a barren environment against their natural instincts and are physically and mentally deprived. The Select Committee on Agriculture stated in 1981
notice should be given that close confinement would be phased out over a reasonable but defined period … financial grants should be so directed as to provide positive support to producers using the small group system; they should not be given to those using the close confinement methods which we have criticised.
This part of the Finance Bill flies in the face of the recommendations made in that Select Committee on Agriculture report. What is worse, the Bill actually encourages the opposite. It encourages more farmers to adopt these cruel methods of intensive farming. It is not just intensive farming methods which will receive a tax boost under this clause. Intensive farming relates to the environment. For example, slurry tanks are used instead of a natural mixture of dung and straw which makes up a healthy manure compost. There is no straw in the tanks and the contents of a slurry tank are put on the land, very possibly containing disease and making the local air unbreatheable for local residents. Slurry tanks are known to leak and pollute local rivers and streams.
The system is also bad for human health. As consumers, we eat the food produced on intensive farms. We eat meat which has been pumped with fat and hormones and the animals are more likely to be in a state of ill-health. That ill-health can be transferred to us and is a factor in the excessive rate of heart disease that exists in this country. The public realise this, and that is why the trend is for more naturally produced food. That goes against the prevailing official ideology and the hard sell by producers.
Intensive farming methods, which the clause encourages, are in themselves appallingly wasteful. They are especially wasteful in terms of jobs in the face of the current level of high rural unemployment. Factory farming is essentially a labour saving device. So essentially, through their tax allowances for intensive farming methods, the Government are providing allowances for farmers to set against labour costs which encourages rural employment.
Intensive farming is also wasteful in land use. Much arable land is turned into prairies of barley grown specifically for animal feed. Alongside that, it is wasteful in Third world terms because intensive farming animals do not graze in fields. Their food has to come to them rather than the other way round. Much of that is imported from countries which can ill afford to produce it. In 1984 when the famine in Ethiopia was at its height, the United Kingdom imported £1·5 million of animal feed stuffs to feed the intensively farmed animals in the United Kingdom. That is a scandalous disgrace. On top of that, the meat is subsequently accumulated in the common market food mountains. That is a disgrace.
Many farmers, however, use humane methods. They do not want to use battery cages, crates and stalls. They allow animals in their care to conform to their natural behaviour patterns. Those farmers are true husbanders. They prefer not to practise intensive farming but often find themselves under pressure because of the financial inducements and incentives for intensive methods which are dangled before them. This part of the Finance Bill is another example of that. It is the Government's responsibility or irresponsibility which is the key factor in farmers' decisions in this respect. The Government should encourage natural farming methods through their tax allowances rather than the opposite which is their policy at present.
The Labour party intends to encourage more natural production. A resolution passed unanimously at the last Labour conference states:
This Conference calls on the National Executive Committee to draw up a programme to introduce a controlled reduction in intensive farming methods in Britain, and also to start planning a programme of alternative, natural, ecologically acceptable and more humane methods of farming to return more workers to the land, which can realistically be encouraged and introduced by the next Labour Government.

Mr. Gow: Will the hon. Gentleman give way?

Mr. Cohen: I have nearly finished. I have only one more line to go.

Hon. Members: Give way.

Mr. Gow: Since the hon. Gentleman has given the text of a resolution passed at the last Labour party conference, could he remind the House of how many votes were cast in favour of the resolution and how many against it?

Mr. Cohen: I think that the resolution was passed unanimously, but I can check that immediately.

Mr. Deputy Speaker (Mr. Ernest Armstrong): Order. That is not relevant to the matter under discussion.

Mr. Cohen: I accept your ruling, Mr. Deputy Speaker. That is a worthwhile resolution for a future Labour Government which I hope will be improved on at future Labour party conferences. When it is implemented, Labour Treasury Ministers will not allow their Finance Bills to boost factory farming, as is the case with this Bill.

Mr. Tony Blair: The House will welcome the opportunity afforded by my hon. Friend the Member for Leyton (Mr. Cohen) in his amendment to have a brief debate on these important matters. I should like to pay tribute to my hon. Friend, who has been a vigorous campaigner for animal welfare and rights since he came to the House.
Two questions arise when we consider taxation in relation to intensive farming. First, do we wish to

encourage intensive farming? Secondly, if we conclude that we do not wish to encourage intensive farming — the weight of evidence is on that side—is it right that the taxation system should encourage it?
Various reports, not merely Government-sponsored reports but also a report of the Agriculture Select Committee in 1981, have been virtually unanimous in their desire to move away from intensive farming. Indeed, the Brambell report commissioned by the Government reported in 1965 and recommended five basic freedoms. They included the freedom of movement, to be able to get up and turn around, for an animal to groom itself, to lie down and to stretch its limbs. We are now 20 years on and none of those is enshrined in statute.
The articles of the European Convention for the protection of animals kept for farming purposes makes specific reference to the welfare of animals which are kept under intensive farming conditions. Article 3 states:
Animals should be housed and provided with food, water and care in a manner which—having regard to their species and to their degree of development, adaptation and domestication — is appropriate to their physiological and ecological needs in accordance with established experience and scientific knowledge.
A Select Committee report in 1981 recommended in relation to the three main items of intensive farming that there should be an early end to veal calf rearing in crates, measures to end the close confinement of sows and the phasing out of battery hens over a five-year period.
Again, it is fair to say that little has been achieved in relation to those specific recommendations. If one studies the answers to parliamentary questions, even as recently as April 1986, it is clear that in relation to veal crates and battery hens there has been little progress.
It is right to ask the Chief Secretary to explain what are the Government's policies. The Government are not merely signatories to the European Convention. EEC council directives have discussed the welfare of animals which are reared in intensive farming conditions. It is a little difficult not to reach the conclusion that legislation in this respect is long on aspirations but that the Government are short on the action needed to turn those aspirations into reality. The only firm legislation in this area is the Agriculture (Miscellaneous Provisions) Act 1968. That set out, as an offence, the causing of unnecessary pain or distress to animals. I should like to know how many prosecutions there have been because of that legislation—I suspect precious few. I suspect that agricultural Ministers are curiously reluctant to vigorously prosecute.
There is a wide body of scientific and public opinion which considers some aspects of intensive farming as unacceptable. The European Convention for the protection of animals kept for farming purposes is against it. The Select Committee on Agriculture and many hon. Members are opposed to such farming. Indeed, the Government are committed to taking action on animal welfare and intensive farming. It is reasonable to conclude, therefore, that the House and Government's of all political persuasions are committed to action. What should be the taxation position in relation to intensive farming?
At the present time, I understand that there are extra statutory concessions which have the effect of giving capital allowance relief to intensive farming. The purpose of the provisions in clause 56 is to replace the extra statutory concessions with expressed laws written into section 68 of the Capital Allowances Act 1968.
My hon. Friend the Member for Leyton has legitimately asked whether this is something we should encourage. If capital allowances are given, there is no doubt that it encourages such farming. There is no actual discrimination in favour of intensive farming but it has been pointed out in previous debates that if one was to change from crated veal to grass-fed veal one may buy or rent fields in order to feed that veal yet there is no tax relief available to do so. Such grass-fed veal production is a more acceptable type of farming. There are also taxation allowances available for industrial farming.
The Select Committee on Agriculture and frequent reports on this subject consider that the tax system should play some part in stating what the position of the public should be towards intensive farming. When the Chief Secretary replies, I trust that he will say whether he agrees with the recommendations of the 1981 Select Committee on Agriculture. That Committee asked that the Government should undertake a review of taxation to see if it was possible, through the taxation system, not merely to cease to encourage intensive farming but to find ways of discouraging it.
A short time ago I remember the Chief Secretary told us that it was in the interests of agriculture to diversify — we all agree on that. It is right that the Chief Secretary should state whether, as part of that diversification, he thinks that it is correct there should be a move away from intensive farming and towards a better system of farming which had been recommended on many occasions.
I notice that the Minister of Agriculture is here and that he has been muttering away in the corner. I must point out to him that the Farm Animal Welfare Council, which is a Government sponsored body, has made it quite clear that many of the arguments that we have put forward this evening should have the support of the Government. I find it curious that the Minister should come to the House and mutter against them. We should have some sign of the Government's thinking.
This is a matter in regard to which Government action is lagging somewhat behind public opinion. There are growing consumer pressures, not to mention pressures from the animal welfare lobby, asking for a reexamination of the system of intensive farming and the relevant taxation. I pay tribute to my hon. Friend the Member for Leyton for raising this subject, and I hope that the Chief Secretary will shed some light on it.

The Chief Secretary to the Treasury (Mr. John MacGregor): I quite understand why the hon. Member for Leyton (Mr. Cohen) wishes to raise these matters, and I

congratulate him on managing to initiate a debate on the Floor of the House as well as in Standing Committee. When we debated the matter in Committee, I warned him that, if we debated this again on the Floor of the House, I should have to focus on the narrow point regarding taxation.
I shall not go into the wider issues which the hon. Gentleman raised, which are the responsibility of my right hon. Friend the Minister of Agriculture, Fisheries and Food, who is here and has listened to the debate, because I do not think that I should go into animal welfare, the rearing of livestock and the relevant regulations. These are matters on which the Parliamentary Secretary to the Ministry of Agriculture, Fisheries and Food, my hon. Friend the Member for Medway (Mrs. Fenner), often speaks in the House, and they are matters for her to respond to.
The hon. Member for Leyton said that, under clause 56, people with buildings that are used for intensive livestock production will get tax relief. He described it as another inducement, as though we are making a change and encouraging intensive livestock production by applying capital allowances to them. That is not true. He is labouring under a misapprehension. There have always been such allowances for these purposes. We are not changing the law in any way in regard to agricultural buildings allowances.
As the hon. Member for Sedgefield (Mr. Blair) said, there has been an extra-statutory concession for many years. It has applied under successive Labour Governments. When we made a change in the agricultural buildings allowance—we are making a modest change in another direction in clause 56—it seemed appropriate to put the extra-statutory concession into primary legislation, as the House wishes, and not leave it as an extra-statutory concession.
We are merely applying the change in clause 56 and schedule 15 relating to balancing adjustments to buildings used for intensive livestock production, like all other agricultural buildings. We are not giving any extra incentives to intensive livestock rearing. If we accepted the amendment, we should reverse the practice of many years. That was never the point of clause 56 and schedule 15. If we want to debate their purpose, as the hon. Member for Sedgefield suggested, that would be a matter for a different occasion.
We should not make a major change to agricultural practices at this late stage in our consideration of the Finance Bill, and I cannot commend the amendment to the House.

Mr. Cohen: The issue will not go away and we will raise it again. Nevertheless, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Orders of the Day — Schedule 15

AGRICULTURAL LAND AND BUILDINGS

Mr. MacGregor: I beg to move amendment No. 109, in page 172, line 20, leave out 'with' and insert
`on the first day or.

Mr. Deputy Speaker (Mr. Ernest Armstrong): With this it will be convenient to consider Government amendments Nos. 110, 111 and 112.

Mr. MacGregor: Schedule 15 includes a set of rules that govern the amount of the annual allowance that is to be given to the vendor and purchaser when there is a sale or other transfer of the relevant interest in the agricultural or forestry land on which the qualifying building or works stand, but no election for a balancing adjustment is made. In cases of this kind, the purchaser takes over the balance of allowances to which the vendor would otherwise have been entitled.
Although the rules as presently drafted would be adequate to deal with many such sales or transfers, our attention has been drawn to the fact that the present wording will give rise to difficulty when, for example, one unincorporated farmer sells to another unincorporated farmer who has a different accounting date.
In such cases, the rules as they stand are not as clear as they might be on the amount of allowances which the two parties to the transaction should receive at the time of the change of ownership. An additional long-term effect could be that full relief for the original capital expenditure might not have been given to the purchaser by the end of the 25-year writing-down period.
This is an area of considerable technical difficulty, but we believe that the proposed amendments, although somewhat lengthy, will put matters right.

Amendment agreed to.

Amendments made: No. 110, in page 174 , leave out lines 11 to 16 and insert
'the former owner shall not be entitled to an allowance under this Schedule for any chargeable period of his after that related to the acquisition and the new owner shall be entitled to allowances under this Schedule for the chargeable period of his related to the acquisition and for subsequent chargeable periods falling within the writing-down period.
(1A) If, in a case falling within sub-paragraph (1) above, the date of the acquisition occurs during a chargeable period of the former owner or its basis period, he shall be entitled only to an appropriate portion of an allowance for the chargeable period related to the acquisition and, similarly, if the date of the acquisition occurs during a chargeable period of the new owner or its basis period, he shall be entitled only to an appropriate portion of an allowance for the chargeable period (of his) related to the acquisition'.

No. 111, in page 174, in line 18, leave out 'subparagraph (1) and insert 'sub-paragraphs (1) and (1A).

No. 112, in page 174, line 41, at end insert—
`(4A) If, by virtue only of the operation of the preceding provisions of this paragraph and, where appropriate, section 75(2) of the Capital Allowances Act 1968, the total allowances which, apart from this sub-paragraph, would fall to be made under this Schedule in respect of any expenditure during the writing-down period appropriate to it would be less than the amount of that expenditure, then, for the chargeable period in which that writing-down period ends, the allowance in respect of that expenditure shall be increased to such amount as will secure that the total of the allowances equals the amount of that expenditure'.—[Mr. MacGregor.]

Orders of the Day — Schedlule 17

SECURITIES: AMENDMENTS OF FINANCE ACT 1985

Amendments made: No. 113, in page 191, line 2, leave out `(5)' and insert `(6)'.

No. 114, in page 191, leave out from beginning of line 3 to end of line 8 on page 192 and insert—
'(2) In sub-paragraphs (2) and (3) for "the unrealised interest" there shall be substituted "amount A".
(3) For sub-paragraph (4) there shall be substituted—
(4) Where the transferee receives an amount by way of the unrealised interest (amount B) and that amount falls to be taken into account in computing tax charged for the chargeable period in which it is received, it shall for the purposes of the Tax Acts be treated as reduced by an amount (amount C) equal to—

(a) nil, if amounts have been previously received by the transferee by way of the unrealised interest and their aggregate is equal to or greater than the value (on the day of the transfer to the transferee) of the right to receive the unrealised interest,
(b) amount B, if that value is equal to or greater than amount B (aggregated with other amounts previously so received, if any),
(c) that value, if no amount has been previously so received and that value is less than amount B, or
(d) so much of that value as exceeds the aggregate of amounts previously so received, in any other case."

(4) In sub-paragraph (7) for "the amount of the unrealised interest" there shall be substituted "amount A".
(5) In sub-paragraph (7A) for "the amount of the unrealised interest" there shall be substituted "amount C".
(6) The following shall be substituted for sub-paragraph (8)—
(8) In this paragraph 'amount A' means, in case where the transferor acquired the securities by a transfer on or after 28th February 1986 with the right to receive unrealised interest,—

(a) an amount equal to amount D less amount E, or
(b) if amount D is equal to or less than amount E, nil

(9) In this paragraph 'amount A' means, in a case riot falling within sub-paragraph (8) above, an amount equal to amount D.
(10) In this paragraph 'amount D' is an amount equal to the value (on the day of the transfer by the transferor) of the right to receive the unrealiaed interest.
(11) In this paragraph 'amount E' means, in a case where the transferor (as transferee) has received in respect of the securities an amount or amounts falling within sub-paragraph (4) above,—

(a) an amount equal to amount F less the total received, or
(b) if amount F is equal to or less than the total received, nil.

(12) In this paragarph 'amount E' means, in any other case, an amount equal to amount F.
(13) In this paragraph 'amount F' means an amount equal to the value (on the day of the transfer to the transferor) of the right to receive the unrealised interest.
(14) In determining for the purposes of this paragraph which securities of a particular kind a person has transferred, he is to be taken to have transferred securities of that kind which he acquired later before securities of that kind which he acquired earlier.
(15) Where the unrealised interest is payable in a currency other than sterling—

(a) any amount received by way of the interest is for the purpose of this paragraph the sterling equivalent on the day it is received of the amount it would he apart from this sub-paragraph, and


(b) the value (on the day of a transfer) of the right to receive the interest is for the purposes of this paragraph the sterling equivalent (on that day) of the value it would be apart from this sub-paragraph;

and for this purpose the sterling equivalent is to be calculated by reference to the London closing rate of exchange for the day concerned.".'.—[Mr. MacGregor.]

Orders of the Day — Clause 96

LIFETIME TRANSFERS POTENTIALLY EXEMPT ETC.

Amendments made: No. 20, in page 85, line 20 leave out from 'tax' to end of line 21.

No. 21, in line 25, after 'transferor', insert—
`(dd) making provision with respect to the application of relief under Chapter I (business property) and Chapter II (agricultural property) of Part V of the 1984 Act to such transfers'.
No. 22, in page 86, line 1, after 'effect' insert
`subject to Part II of that Schedule'.—[Mr. MacGregor.]

Orders of the Day — Schedule 19

INHERITANCE TAX

Sir Brandon Rhys Williams: I beg to move amendment No. 115, in page 201, line 9, leave out
`otherwise than as settled property'.

Mr. Deputy Speaker: With this it will be convenient to take the following amendments:
No. 116, in page 201, leave out lines 14 and 15.
No. 117, in page 201, line 32, after 'provision', insert`other than section 52'.
No. 120, in page 205, line 20, leave out paragraphs 13 and 14.
No. 203, in page 205, line 26, at end insert—
'13A. After Section 52 there shall be inserted the following section—
52A. (1). This section applies to a transfer of value of settled property where:—

(a) by virtue of a potentially exempt transfer made after 18th March 1986 (`the original transfer') a person other than the settlor (`the life tenant') becomes beneficially entitled to an interest in possession in the settled property immediately after the settlement commenced; and
(b) within seven years of the commencement of the settlement the life tenant's interest comes to an end whether during the life tenant's lifetime or on his death; and
(c) the transfer of value of the settled property then made (`the relevant transfer') is not a potentially exempt transfer or if the relevant transfer is made on the life tenant's death would not have been a potentially exempt transfer if it had been made during the life tenant's lifetime.

(2) Where this section applies the tax chargeable on the relevant transfer shall be the greater of:—

(a) the tax which would be chargeable on the relevant transfer apart from this section; and
(b) the tax which would have been chargeable on the original transfer if such transfer had not been a potentially exempt transfer less the tax (if any) which proves to be chargeable on the original transfer.

(3) References to the commencement of a settlement shall be construed in accordance with section 60 of this Act.".'.

Sir Brandon Rhys Williams: The Budget introduced a significant new departure in regard to the tax treatment of outright gifts: they will be entirely free of tax if the donor survives for seven years. That is intended to be, and will certainly constitute, a very strong encourgement to people with money or property to bequeath to hand it over well before they come to the end of their days. I feel some doubt about the extension of the period of risk to seven years, but the reform has been widely welcomed and is an important part of the Budget.
There is a matter of concern to many people who want to make prudent dispositions of their personal assets, including a number of my constituents in Kensington, not only people of very substantial personal wealth, but people with shares in family businesses or simply with spouses or dependants for whom they want to provide without running the risk that their assets after their time might be dissipated by immature or inexpert management.
The Government's proposals are also causing acute concern to the professional advisers who are responsible for helping such people, as I am sure my hon. Friend is well aware. This is because under the Budget proposals an element of discrimination is now introduced against trusts which create a life interest, technically called interest in possession trusts. This type of trust has been the classic vehicle for centuries for conveying family assets from generation to generation, and has played a recognised and entirely respectable part in maintaining continuity and stability in the control of personal wealth, including family businesses and agricultural estates.
To legislate in such a way as to put families that rely on this method of ensuring that their assets are competently managed and preserved over long spans of time would be entirely contrary to the Government's policy and damaging to the public interest. In disposing of their property, many people will now be advised to avoid the use of this sensible and satisfactory method of settlement; and trusts already in existence may be wound up prematurely when it would have been more prudent to have let them continue.
That, however, is the effect of what presently stands in the Bill. Outright gifts are to be made entirely free of tax if the donor lives for seven years, but if money is put into an interest in possession trust on the way to the very same beneficiary, or if it has already been put into such a trust, it will continue to be caught for tax on the transfer of the capital. This new departure is a breach of the established principle that outright gifts and gifts through interest in possession trusts should be treated on all fours for tax purposes.
Many people have relied on that principle and with good reason. The Capital Transfer Tax Act of 1984 makes the point in section 49, which provides:
A person beneficially entitled to an interest in possession in settled property shall be treated for the purposes of this Act as beneficially entitled to the property in which the interest subsists.
The Act was merely repeating, without any change, the provisions of schedule 5 to the Finance Act 1975. That provision has thus been part of statute law for a considerable number of years and many people have relied on it. There could not be a more specific statement in statute that outright gifts and interests in possession trusts are seen as having equal tax status.. Many trusts have been set up in reliance on that statement. Now the settlors find, retrospectively, that they appear to have made a mistake.
The matter was raised in Committee on 10 June by my hon. Friend the Member for Corby (Mr. Powell), but his amendments were rejected with a somewhat far-fetched argument from my hon. Friend the Minister. He introduced the bogey of a man of straw, who he felt might be brought into the matter to assist in creating a tax fiddle. Professional people who know this subject well found this suggestion surprising. In so far as there is a risk to the Inland Revenue, it could easily be overcome. My amendments include a provision that would make it profitless to bring a man of straw into the sequence of beneficiaries. There would be no risk that the donor could get money into a discretionary trust on the cheap, which is what my hon. Friend is afraid of. Other answers could no doubt be devised, but I recommend amendment No. 203 as the simple answer to the bogey that the man of straw might give rise to undesirable tax avoidance.
The tax implications of my proposal would be very small, if not nil, for the simple reason that people with assets to transfer will now take advantage of the freedom from tax available through outright gifts, and will cease to use the sensible and hitherto widely used device of an interest in possession trust. To leave the Bill as it stands would be pointlessly damaging and entirely unnecessary. I have tabled, with the benefit of highly professional advice, amendments that would restore the status of interest in possession trusts without opening up any risk of a new type of tax abuse. I hope therefore that the Treasury will accept my amendments.

Mr. Brooke: My hon. Friend the Member for Kensington (Sir B. Rhys Williams) has returned to the specific subject of trusts which we discussed in Committee. It was good of him to welcome the main thrust of the Government's provisions in this sector. Amendments Nos. 115, 116, 117 and 120 seek to exempt lifetime transfers into and out of interest in possession trusts from an immediate tax charge—that is, to make them potentially exempt transfers in the same way as transfers between individuals. Thus, they cover much the same ground as more detailed amendments on the same topic that were discussed in Committee, when I explained in some detail why the Government were unable to accept the amendments.
10.45 pm
We believe that an effective trust regime must be retained as protection for the death charge. Without it, inheritance tax would become a voluntary tax and we do not intend to allow that to happen. As I explained, we have decided to retain the existing trust regime for that purpose. It was introduced in 1982 after extensive consultation and has become widely accepted as a proper method of changing trusts. We believe that it must be kept intact if it is to remain effective.
In particular, we believe that we must retain the charges that affect interests in possession. Trust interests can easily be altered, and if we exempted transfers involving interests in possession without substantial new anti-avoidance provisions we should greatly assist those who already regard the trust regime as a major factor in their tax planning. Although my hon. Friend expressed disbelief in the man of straw, there is no doubt that that is a potential device for circumventing the death charge and the intent that lies behind the Government's present legislation.
Our decision has been criticsed as a departure from the capital transfer tax concept of giving interests in possession parity of treatment with outright ownership.

That was a conscious decision and I make no apology for it. Capital transfer tax has now gone. The Government's purpose in changing to inheritance tax is to remove obstacles to unfettered lifetime giving while protecting the death charge. My hon. Friend was good enough to praise the basic intent.
Trust giving may now be more expensive than unfettered outright giving. But trusts are no worse off than they were under capital transfer tax; indeed, they may do rather better, because absolute gifts outside the period of seven years before the donor's death will not now influence the trust tax rates. If we had proceeded differently so as to keep slavishly to the old concept of parity, we would have needed to create a new trust regime with a complicated network of anti-avoidance measures. We believe that that would have been unwelcome, not least because it might well have made trust giving more expensive.
My hon. Friend then referred to amendment No. 203 and indicated that it would provide a device to respond to the Government's misgivings about providing relief to the trust regime in this area. Amendment No. 203 attempts to counter the trust-based avoidance that could occur if interests in possession were treated in the same way as outright interests. It seeks to provide that if property passes through an interest in possession trust into a discretionary trust, the rate of tax payable when the discretionary trust comes into existence will be that which would have been applicable to the original CTT law. In principle, obviously this is a sound approach if one accepts that the old capital transfer tax parity should be retained, but, as I explained, Ministers do not accept that.
Even on its own merits, amendment No. 203 is not sufficiently refined. It fails to deal with the routeing of property through a temporary interest in possession for a spouse or with any other case where the original transfer into trust exploits an inheritance tax exempt transfer provision. It expires illogically after seven years. It creates anomalies and it fails to address such issues as the effect on cumulations. It may have been unintentional, but it even starts a day too late—after 18 March instead of on 18 March.
I mention these things to illustrate the point that I made both in Standing Committee and a moment ago that a panoply of legislation would be needed to prevent avoidance if we were to adopt the approach proposed by the amendments. My hon. Friend is an example to the whole House in the manner in which he goes into these things. He may care to consider the detailed supportive provisions that apply when conditional exemption of heritage property is clawed back. They are in sections 33 and 34 of the Capital Transfer Tax Act 1984 which are amended by schedule 19.
A simple provision drafted on to existing legislation would not do. It would be necessary to undertake a major review and revision of all the trust provisions in the inheritance tax legislation and to construct a fresh code, complete with appropriate anti-avoidance provisions. Even if my hon. Friend were able to consider sections 33 and 34, I do not promise him that all the complications would be dealt with. That road would be complicated. We have decided not to go down it. For that reason, I ask my hon. Friends to reject the amendment.

Sir Brandon Rhys Williams: This short debate has served a useful purpose, because it has elicited from the


Treasury a more specific argument than that which we had in the Standing Committee in support of the Government's intention. We should all be grateful to my hon. Friend the Minister of State for the trouble that he has taken to analyse the reasons as precisely as he has. As he is aware, he has left himself open to the extensive correspondence that will inevitably follow when people have had time to consider all that he has said. For the time being, I thank him for taking the matter so seriously. In view of his remarks, especially those concerning my amendment No. 203, I will not press the matter. However, I hope that, in due course, the House will consider it again. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendments made: No. 119, in page 205, line 13 at end insert—
'11A. In section 35 (conditional exemption on death before 7th April 1976) in subsection (3) for the words "section 33(7) above, the reference" there shall be substituted "section 33(7) and (8) above, references", and for the words "includes a reference" there shall be substituted "include references".'.

No. 121, in page 206, line 22, leave out 'section' and insert 'sections'.

No. 122, in page 207, line 19, at end insert—
'(5A) Where any shares owned by the transferee immediately before the death in question—

(a) would under any of the provisions of sections 77 to 86 of the Capital Gains Tax Act 1979 be identified with the original property (or part of it), or
(b) were issued to him in consideration of the transfer of a business or interest in a business consisting of the original property (or part of it),

they shall be treated for the purposes of this section as if they were the original property (or that part of it).
(5B) This section has effect subject to section 113B below.'.

No. 123, in page 207, line 27, at end insert
'or, where on the transfer the original property became or remained settled property in which no qualifying interest in possession (within the meaning of Chapter III of Part III of this Act) subsists, the trustees of the settlement'.

No. 124, in page 207, line 27, at end insert—

'Application of section 113A to replacement property
113B.—(1) Subject to subsection (2) below, this section applies where—

(a) the transferee has disposed of all or part of the original property before the death of the transferor; and
(b) the whole of the consideration received by him for the disposal has been applied by him in acquiring other property (in this section referred to as "the replacement property").

(2) This section does not apply unless—

(a) the replacement property is acquired, or a binding contract for its acquisition is entered into, within twelve months after the disposal of the original property (or, as the case may be, the part concerned); and
(b) the disposal and acquisition are both made in transactions at arm's length or on terms such as might he expected to be included in a transaction at arm's length.

(3) Where this section applies, the conditions in section 113A(3) above shall be taken to be satisfied in relation to the original property (or, as the case may be, the part concerned) if—

(a) the replacement property is owned by the transferee immediately before the death of the transferor; and
(b) throughout the period beginning with the date of the chargeable transfer and ending with the death (disregarding any period between the disposal and acquisition) either the original property or the replacement property was owned by the transferee; and

(c) in relation to a notional transfer of value made by the transferee immediately before the death, the replacement property would (apart from section 106 above) be relevant business property.

(4) If the transferee has died before the transferor, any reference in subsections (1) to (3) above to the death of the transferor shall have effect as a reference to the death of the transferee.
(5) In any case where—

(a) all or part of the original property has been disposed of before the death of the transferor or is excluded by section 113 above from being relevant business property in relation to the notional transfer of value referred to in section 113A(3)(b) above, and
(b) the replacement property is acquired, or a binding contract for its acquisition is entered into, after the death of the transferor but within twelve months after the disposal of the original property or part, and
(c) the transferor dies before the transferee,

subsection (3) above shall have effect with the omission of paragraph (a), and as if any reference to a time immediately before the death of the transferor or to the death were a reference to a time immediately before the death of the transferor or to the death were a reference to the time when the replacement property is acquired.
(6) Section 113A(5A) above shall have effect in relation to the replacement property as it has effect in relation to the original property.
(7) Where a binding contract for the disposal of any property is entered into at any time before the disposal of the property, the disposal shall be regarded for the purposes of subsections (2)(a) and (5)(b) above as taking place at that time.
(8) In this section "the original property" and "the transferee" have the same meaning as in section 113A above.".'.

No. 125, in page 207, line 28, leave out 'section' and insert 'sections'.

No. 126, in page 208, line 5, after 'period",' insert
'and is not at the time of the death subject to a binding contract for sale'.

No. 127 in page 208, line 35, at end insert—
'(5A) Where any shares owned by the transferee immediately before the death in question—

(a) would under any of the provisions of sections 77 to 86 of the Capital Gains Tax Act 1979 be identified with the original property (or part of it), or
(b) were issued to him in consideration of the transfer of agricultural property consisting of the original property (or part of it),

they shall be treated for the purposes of this section as if they were the original property (or that part of it).
(5B) This section has effect subject to section 124B below.'.

No. 128, in page 208, line 47, at end insert
'or, where on the transfer the original property became or remained settled property in which no qualifying interest in possession (within the meaning of Chapter III of Part III of this Act) subsists, the trustees of the settlement'.

No. 129, in page 208, line 47, at end insert—

'Application of section 124A to replacement property.
124B.—(1) Subject to subsection (2) below, this section applies where—

(a) the transferee has disposed of all or part of the original property before the death of the transferor; and
(b) the whole of the consideration received by him for the disposal has been applied by him in acquiring other property (in this section referred to as "the replacement property").

(2) This section does not apply unless—

(a) the replacement property is acquired, or a binding contract for its acquisition is entered into, within twelve months after the disposal of the original property or, as the case may be, the part concerned); and


(b) the disposal and acquisition are both made in transactions at arm's length or on terms such as might be expected to be included in a transaction at arm's length.

(3) Where this section applies, the conditions in section 12A(3) above shall be taken to be satisfied in relation to the original property (or, as the case may be, the part concerned) if—

(a) the replacement property is owned by the transferee immediately before the death of the transferor and is not at that time subject to a binding contract for sale; and
(b) throughout the period beginning with the date of the chargeable transfer and ending with the disposal, the original property was owned by the transferee and occupied (by the transferee or another) for the purposes of agriculture; and
(c) throughout the period beginning with the date when the transferee acquired the replacement property and ending with the death, the replacement property was owned by the transferee and occupied (by the transferee or another) for the purposes of agriculture; and
(d) the replacement property is agricultural property immediately before the death.

(4) If the transferee has died before the transferor, any reference in subsections (1) to (3) above to the death of the transferor shall have effect as a reference to the death of the transferee.
(5) In any case where—

(a) all or part of the original property has been disposed of before the death of the transferor or is subject to a binding contract for sale at the time of the death, and
(b) the replacement property is acquired, or a binding contract for its acquisition is entered into, after the death of the transferor but within twelve months after the disposal of the original property or part, and
(c) the transferor dies before the transferee, subsection (3) above shall have effect with the omission of paragraphs (a) and (c), and as if any reference to a time immediately before the death of the transferor were a reference to the time when the replacement property is acquired.

(6) Section 124A(5A) above shall have effect in relation to the replacement property as it has effect in relation to the original property.
(7) Where a binding contract for the disposal of any property is entered into at any time before the disposal of the property, the disposal shall be regarded for the purposes of subsections (2)(a) and (5)(b) above as taking place at that time.
(8) In this section "the original property" and "the transferee" have the same meaning as in section 124A above'.

No. 130, in page 209, line 9, at end insert
`(3) After that subsection there shall be inserted the following subsection—
(2A) Where so much of the value transferred as is attributable to the value, or agricultural value, of the transferred property is reduced by any percentage (in this subsection referred to as "the appropriate percentage") in accordance with Chapter I or Chapter II of this Part of this Act, references in subsection (2) above to the market value of the transferred property at any time shall have effect—

(a) in a case within Chapter I, as references to that market value reduced by the appropriate percentage; and
(b) in a case within Chapter II, as references to that market value less the appropriate percentage of the agricultural value of the transferred property at that time."'.

No. 131, in page 211, line 9, leave out 'subsection' and insert 'subsections'.

No. 132, in page 211, line 13, leave out from 'which' to end of line 21 and insert—
`is owned by the transferee immediately before the death of the transferor (or, if earlier, his own death).

(1B) In subsection (1A) above "the transferee" means the person whose property the qualifying property became on the transfer or, where on the transfer the qualifying property became comprised in a settlement in which no qualifying interest in possession (within the meaning of Chapter III of Part III of this Act) subsists, the trustees of the settlement.
(2) In subsection (5) of that section after the words "subsection (1)(b) above" there shall be inserted "other than a case within subsection (1A) above where the transferee dies before the transferor".'.

No. 201, in page 212, line 14, after 'subsection', insert `(1) or'.

No. 133, in page 212, line 17, at end insert
`(except where the Board think fit to entertain the application at an earlier time after the death)".'.

No. 134, in page 213, line 35, at end insert—
'37A. In Schedule 6 (transition from estate duty) in paragraph 4(3) after the words "sections 33(7)" there shall be inserted the words "and (8)".'.

No. 135, in page 215, line 14, at end insert—
`44. Notwithstanding anything in section 3A of the 1984 Act, a transfer of value which is made on or after 1st July 1986 and which, by virtue of subsection (4) of section 49 of the Finance Act 1975 (transitional provision relating to estate duty deferment in respect of timber etc.), brings to an end the period during which estate duty is payable on the net moneys received from the sale of timber etc. is not a potentially exempt transfer.'.—[Mr. MacGregor.]

Orders of the Day — Clause 97

GIFTS WITH RESERVATION

Amendment made: No. 23, in page 87, line 12, leave out from 'unless' to end of line 15 and insert
`the policy is varied on or after that date so as to increase the benefits secured or to extend the term of the insurance; and, for this purpose, any change in the terms of the policy which is made in pursuance of an option or other power conferred by the policy shall be deemed to be a variation of the policy.'. —[Mr. MacGregor.]

Orders of the Day — Schedule 20

GIFTS WITH RESERVATION

Amendments made: No. 136A, in page 219, line 22, leave out 'under the principal section'.

No. 202, in page 219, line 45, at end insert—

'Agricultural property and business property
8. — (1) Where there is a disposal by way of gift of property which, in relation to the donor, is at that time—

(a) relevant business property within the meaning of Chapter I of Part V of the 1984 Act, or
(b) agricultural property, within the meaning of Chapter II of that Part, to which section 116 of that Act applies, or
(c) shares or securities to which section 122(1) of that Act applies (agricultural property of companies),

and that property is property subject to a reservation, then, subject to the following provisions of this paragraph, any question whether, on the material transfer of value, relief is available by virtue of Chapter I or Chapter II of Part V of the 1984 Act and, if so, what is the appropriate percentage for the relief shall be determined as if, so far as it is attributable to the property comprised in the gift, that transfer were a transfer of value by the donee.
(2) For the purpose only of determining whether, on the transfer of value which, by virtue of sub-paragraph (1) above, the donee is assumed to make, the requirement of section 106 or, as the case may be, section 117 of the 1984 Act (minimum period of ownership or occupation) is fulfilled, —

(a) ownership by the donor prior to the disposal by way of gift shall be treated as ownership by the donee; and


(b) occupation by the donor prior to the disposal and any occupation by him after that disposal shall be treated as occupation by the donee.

(3) Where the property disposed of by the gift consists of shares or securities falling within paragraph (c) of sub-paragraph (1) above, that sub-paragraph shall not apply unless—

(a) section 116 of the 1984 Act applied in relation to the value transferred by the disposal, and
(b) throughout the period beginning with the disposal and ending on the material date, the shares or securities are owned by the donee,

and for the purpose only of determining whether, on the transfer of value which, by virtue of sub-paragraph (1) above, the donee is assumed to make, the requirements of subsection (1) of section 123 of the 1984 Act are fulfilled, it shall be assumed that the requirement in paragraph (b) of that subsection (as to the ownership of the shares or securities) is fulfilled.
(4) In this paragraph, "the material transfer of value" means, as the case may require,—

(a) the transfer of value under section 4 of the 1984 Act on the death of the donor; or
(b) the transfer of value under subsection (4) of the principal section on the property concerned ceasing to be subject to a reservation.

(5) If the donee dies before the material transfer of value, then, as respects any time after his death, any reference in the preceding provisions of this paragraph to the donee shall be construed as a reference to his personal representatives or, as the case may require, the person (if any) by whom the property, shares or securities concerned were taken under a testamentary disposition made by the donee or under his intestacy (or partial intestacy).'. —[Mr. MacGregor.]

Orders of the Day — Clause 98

TREATMENT OF CERTAIN DEBTS AND INCUMBRANCES

Amendments made: No. 24, in page 87, leave out lines 27 to 34.

No. 25, in page 89, line 11, at end insert—
'(8) In determining the value of a person's estate immediately before his death, no account shall be taken (by virtue of section 5 of the 1984 Act) of any liability arising under or in connection with a policy of life insurance issued in respect of an insurance made on or after 1st July 1986 unless the whole of the sums assured under that policy form part of that person's estate immediately before his death.'.—[Mr. MacGregor.]

Orders of the Day — Clause 99

REGULATIONS FOR AVOIDING DOUBLE CHARGES ETC.

Amendments made: No. 26, in page 89, line 25, leave out 'and'.

No. 27, in page 89, line 30, at end insert
'or by virtue of which property becomes comprised in a settlement of which that other person is a trustee; or
(d) the circumstances are such as may be specified in the regulations for the purposes of this subsection, being circumstances appearing to the Board to be similar to those referred to in paragraphs (a) to (c) above.'. —[Mr. MacGregor.]

Orders of the Day — Clause 104

ALTERNATIVE VALUATION OF LIGHT GASES

Amendment made: No. 28, in page 95, line 33, at beginning insert
'This section shall be construed as one with part I of the principal Act and'. —[Mr. MacGregor.]

Orders of the Day — Schedule 21

MODIFICATIONS OF FINANCE ACT 1982, SCHEDULE 18 IN RELATION TO ELECTIONS UNDER SECTION 104 OF THIS ACT

Amendments made: No. 137, in page 220, line 12, after `election)' insert
'in sub-paragraph (2)(b) for the words "and not exceeding fifteen years" there shall be substituted "or in the case of an election made before 31st December 1986, beginning on 1st July 1986" and'.

No. 138, in page 221, line 22, leave out 'for the words following "but"', and insert
'in paragraph (a) after the word "and", in the first place where it occurs, there shall be inserted the words "which, subject to sub-paragraph (3) below" and in the words following paragraph (b) for the words from "is not" onwards'.

No. 139, in page 221, line 27, leave out from beginning to 'Sub-paragraph' in line 28 and insert
'sub-paragraphs—
(3) In the case of an election which relates to light gases which are "excluded oil", as defined in section 10(1) of the principal Act, sub-paragraph (1)(a) above shall have effect with the omission of the words from "and which" to "date of the election".

No. 140, in page 223, line 27, at beginning insert
'then, subject to sub-paragraph (4) below'.

No. 141, in page 223, line 46, at end insert—
'(4) If, within the period of three months beginning on the date of a notice under this paragraph, the party or parties to the election give notice in writing to the Board—

(a) specifying a new price formula taking account of the manner, extent or pattern of supply by which the gases to which the election applies are being disposed of or appropriated, and
(b) containing, if appropriate, a description of the changed pattern of supply which at the time of the notice, the party or parties to the election consider most probable,

then, if that new price formula is accepted by the Board in accordance with paragraph 7 below, so much of subparagraph (1) above as provides that the election shall not have effect with respect to certain periods shall not apply.
(5) If notice has been given under sub-paragraph (4) above and a new price formula has been accepted as mentioned in that sub-paragraph then, for the purpose of determining, for any chargeable period beginning after the date on which the Board gave notice as mentioned in sub-paragraph (1) above, the market value of light gases to which the election applies, section 104 of the Finance Act 1986 shall have effect as if the new price formula were the formula specified in the election.'.
No. 142, in page 224, line 3, at end insert
'and at the end of paragraph (b) of that sub-paragraph there shall be inserted "or
(c) a new price formula specified in a notice under paragraph 6A(4) above";
and for the words from "were specified" onwards there shall be substituted "had been specified in, and at the time of, the election and as if the circumstances giving rise to the new price formula had been in contemplation at that time.
(2) In sub-paragraph (5) of that paragraph, after "6(5)(b)" there shall be inserted "or paragraph 6A(4)".'—[Mr. MacGregor.]

Orders of the Day — Schedule 22

REPEALS

Amendments made: No. 143, in page 227, line 25, column 3, at beginning insert—
'In section 457(1 A), the words from "and does not" to the end.'

No. 144, in page 227, line 30, column 3, at end insert—
`Section 107(3).'

No. 145, in page 227, line 40, at end insert—


`1985 c.54.
The Finance Act 1985.
Section 49.

'The repeal in section 457(1A) of the Income and Corporation Taxes Act 1970 and the repeal of section 49 of the Finance Act 1985 have effect for the year 1986–87 and subsequent years of assessment.'

No. 146, in page 227, line 46, at end insert—
'The repeal of section 107(3) of the Finance Act 1972 has effect where a company ceases to carry on a trade, or part of a trade, after 18th March 1986, subject to the application of section 42(3) of this Act with the words "the repeal does not" substituted for "those amendments do not".'.

No. 176, in page 231, line 2, after 'executed', insert—
'in pursuance of a contract made'.
No. 147, in page 231, line 13, column 3, at beginning insert—
'In section 7(1)(a), the word "appropriate".'.

No. 30, in page 231, line 29, at end insert—


'PART XI


BROADCASTING: ADDITIONAL PAYMENTS BY PROGRAMME CONTRACTORS


Chapter
Short Title
Extent of Report


1981 c.68.
The Broadcasting Act 1981
In section 32(9), the words "to amend sub-sections (4) and (5)".




In section 34(2)(b), the words from "when the" to the end.




In section 35(2)(a) and (b), the word "relevant".


1984 c. 46.
The Cable and Broadcasting Act 1984.
Section 40(3).

These repeals shall be deemed to have come into force on 1st April 1986.—[Mr. MacGregor.]

Mr. MacGregor: I beg to move, That the Bill be now read the Third time.

Mr. Terry Davis: It is interesting that the Chief Secretary to the Treasury should move the Third Reading so briefly. I was prepared for him to make a longer speech. However, it was not necessary, because there is so little in the Bill. I am glad that, at long last, he has conceded that the Budget is irrelevant and that the Bill is uninteresting. There has been a tacit admission that we were right.
However, some things have changed since the Budget and, therefore, the Bill—not least of which is the fall in the price of oil. We were told that the Budget and the Bill were based on the assumption that oil would be $15 a barrel for the rest of the year. It is now $9 a barrel. There has been a change in unemployment. Unemployment has risen by 60,000 since the Budget.
Everywhere we look we see that the Government's strategy is in tatters. I am not surprised that the Chief Secretary did not wish to draw attention to that by seeking to make a speech when he moved the Third Reading of the Bill.

Mr. MacGregor: It was not my intention not to make a speech, because I am proud of the Bill. I thought that the hon. Member for Birmingham, Hodge Hill (Mr. Davis) wanted to make progress. As I said at the start of our Second Reading debate over two months ago, the Bill continues the Government's progress in reducing the burden of taxation and reforming the tax system, despite the constraint of an unprecedented fall in oil revenues. That achievement demonstrates the underlying resilience of the economy, the limited extent to which we now need to rely on the North Sea sector, and the value of the prudent financial and economic policies that we have pursued.
The main tax reduction in the Bill is the cut in the basic rate to 29p— the first such reduction since 1979. This improves incentives for over 20 million people of working age, and is a further step towards the long-term objective of a basic rate of no more than 25 per cent., to which my right hon. Friend the Chancellor referred in his Budget speech. The higher rate threshold changes have been structured in such a way that the benefit of this year's basic rate cut is concentrated around the middle of the income distribution.
The Bill incorporates a number of other important tax measures—the introduction of personal equity plans; the restructuring of stamp duty; and the introduction of a generous package of reliefs to encourage charitable giving. Those measures have been widely welcomed in the charity field. The change from capital transfer tax to inheritance tax, with the abolition of the immediate tax change on lifetime gifts between individuals, will be of particular benefit to family firms and family farms.
We had a very constructive and worthwhile Committee stage. During our scrutiny of the Bill, we made helpful technical changes and also a number of changes that went wider than that. Most hon. Members will be aware of those changes, and I shall not elaborate upon them. The House has considered a large number of technical and other amendments in response to representations that were made in Committee and it now wishes to make progress. The Bill reflects the Government's taxation objectives. It was thoroughly worth while in its original form, and it has benefited from careful and constructive consideration. Therefore, I commend it to the House.

Question put and agreed to.

Bill accordingly read the Third time, and passed.

Channel Tunnel Bill

The Minister of State, Department of Transport (Mr. David Mitchell): I beg to move,
That it be an Instruction to the Committee on the Channel Tunnel Bill that it has power to consider alternatives to the provision which is now made in the Bill regarding the access to and egress from the terminal area by road, and that with respect to the access and egress from the terminal area by road it has power to make Amendments to the Bill if it thinks fit; and that any Petitions against such Amendments to the Bill presented by being deposited in the Private Bill Office not later than 26th September, in which the Petitioners pray to be heard by themselves, their Counsel or Agents, he referred to the Committee.
I am happy to say that I shall not need to take up too much of the time of hon. Members in explaining the background to the somewhat narrow point that gives rise to tonight's debate. As with so many aspects of the Channel Tunnel proposals as they affect Folkestone, hon. Members will recognise the hand of my hon. and learned Friend the Member for Folkestone and Hythe (Mr. Howard), the Parliamentary Under-Secretary of State for Trade and Industry, in terms of the matters that we are debating. Indeed, some will be familiar with that biblical quotation
The voice is the voice of Jacob, but the hand is the hand of Esau.
In this case I have to admit that the voice is the voice of transport, but the hand is the hand of my hon. and learned Friend the Member for Folkestone and Hythe, who has pressed so strongly that the means of access to and egress from the Cheriton terminal should be altered in ways which find favour with his constituents.
As the House knows, the Channel Tunnel Bill was given a Second Reading on 5 June. In the early hours of 6 June, being a hybrid Bill it was committed for consideration to a Select Committee of Members of this House. The Select Committee was duly appointed, and on 24 June began to hear petitions from affected groups and individuals seeking amendments to the Bill, or assurances about their rights or interests.
Under the Bill's proposals, vehicular access to and from the M20 would take the form of a three-lane, dual carriageway road, approximately 1·7 km long, to the north-western corner of the terminal site. The villages of Frogholt and Newington would then lie between the terminal approach road and the motorway. The approach road would also pass between Newington and its sister village of Peene, although at this point, for a short length it would be constructed in cut and cover. This road to the terminal would also pass very close to Asholt wood, a wet wood, which is designated as a site of special scientific interest.
The construction of the approach roads would necessitate the acquisition of about 45 acres of agricultural land. A number of bodies and individuals petitioned the Select Committee in favour of certain changes to these arrangements for access to and egress from the terminal. These petitioners included Shepway district council, the authority within whose area the terminal site lies, my hon. and learned Friend the Member for Folkestone and Hythe, taking a special interest. The Kent county council and three other district councils in east Kent were also petitioners in this matter.
In seeking these changes, the petitioners have several objectives, including a reduction in the amount of open

land required for the terminal, a reduction in the noise and disturbance in the villages of Newington, Peene and Frogholt and the provision of a means of encouraging visitors arriving at the terminal to visit Folkestone, Dover and east Kent instead of joining the M20 directly and heading for London and beyond.
I say in parenthesis that those who, like me, have had the good fortune to spend a number of days visiting this part of Kent have been impressed not only by the beauty and attractiveness of the constituency represented by my hon. and learned Friend but also by the number of fascinating things that there are in Folkestone and Dover to hold tourists there.
The hon. Member for West Bromwich, East (Mr. Snape), who speaks for the Labour party tonight, chuckles. I am not sure whether he has spent the time that I have in Dover and appreciates the Crabble Mill, the Napoleonic staircase, the old Roman quay, which is unfortunately still covered by sand but which can be brought alive for tourists to see, as well as the Roman look-out point on the castle. There is a host of great attractions there.
In pursuit of their objectives, petitioners lodged suggested amendments to the terminal layout that would have enabled provision to be made in respect of the road exit at the eastern end of the site, that is, adjacent to Folkestone. These options became known as the eastern egress options.
To assist the Select Committee in its consideration of these and other proposals, a working group was set up to examine possible alternatives to the arrangements in the Bill. The group included representatives of the local authorities concerned, Eurotunnel and the Department of Transport, and it has now reported. Its conclusions are that none of the eastern egress proposals are feasible but that further alternatives suggested by the Shepway district council and my hon. and learned Friend the Member for Folkestone and Hythe is worthy of further examination.
The further alternatives would involve short entrance and exit roads on the south western edge of the site and would meet many, but not all, of the objections put forward by the petitioners. I should at this point reassure some hon. Members who may have been somewhat alarmed by a report in The Guardian on Wednesday 16 July. It suggested that a
motorway challenge may go to Europe".
It said that
more than 400 residents in Cheriton, Kent, are threatening to take the Government to the European Court of Human Rights over a last-minute attempt to shift the motorway link for the Channel Tunnel.
I have to say that that is the proposal that was examined by the group and found to be defective and abandoned. It is not connected in any way by the proposition that would be considered if the House sees fit to allow the motion tonight.

Mr. Ian Gow: During the journeys that my hon. Friend the Minister has made through the county of Kent to which he has just referred, to an enthralled House, was he accompanied by my right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath)?

Mr. Mitchell: On a number of occasions—

Mr. Deputy Speaker (Mr. Harold Walker): Order. The House is anxious to make progress with this matter. I do


not think that the hon. Gentleman's intervention is very relevant or helpful, and I hope that the Minister will disregard it.

Mr. Gow: On a point of order, Mr. Deputy Speaker. Does not my right hon. Friend the Member for Old Bexley and Sidcup represent part of the county of Kent, and did he not live in the constituency of my hon. Friend the Member for Thanet, South (Mr. Aitken)? Is it not most relevant whether Members of this House should accompany Ministers when they make very important journeys of this kind?

Mr. Deputy Speaker: Order. I hope that the House will have regard to the motion before the House on an instruction to the Select Committee. I hope that right hon. and hon. Members will not challenge rulings from the Chair.

Mr. Mitchell: I am grateful to my hon. Friend the Member for Eastbourne (Mr. Gow) for having drawn attention to the visits that I have made to Kent. I should say that I have been accompanied on several occasions by my hon. Friend the Parliamentary Under-Secretary of State for the Environment, who has taken a special interest in the environmental implications of the project.
I should say to the House at this stage that it is by no means clear that the compromise alternative proposed is superior to the option in the Bill. Eurotunnel has expressed reservations about the revised option and strongly favours the original layout. Nor have we yet heard from local people, who may well petition against alteration of the Bill's scheme.
Although the revised option would reduce the amount of land taken for the terminal, it would involve the acquisition of certain land not currently included in the Bill. For that reason, it is necessary to serve notice on land owners and tenants and to publish advertisements in the normal way so that those affected can petition against amendments to the Bill.
If the House approves the motion, it would be our intention to advertise the proposals from the beginning of August. The closing date for petitions laid down in the motion would give potential petitioners about eight weeks to present their petitions to the House. In the light of those petitions, the evidence which the Select Committee has already heard and the report of the working group, the Select Committee will be able to determine whether the amendments should be made.
The motion is relatively simple. The procedure was first used in connection with the Park Lane Improvement Bill in 1958, so we are not breaking new ground with House procedure. The motion would enable the Committee to respond positively to the petitions which it has already heard and at the same time ensure that all the facts are available and that local people have a chance to express their opinions. I commend the motion to the House.

Mr. Peter Snape: Like the Minister of State, I can be brief. The Opposition welcome the opportunity given to the people concerned to petition along the lines outlined by the motion, and give the motion their wholehearted support.
I issue an immediate disclaimer. I did not accompany the Minister on his travels—or perhaps travails would

be a better description. For a Member representing Basingstoke, his geographical knowledge was extremely commendable.

Mr. Jeremy Hanley: It is closer.

Mr. Snape: It is certainly closer than West Bromwich.

Mr. David Mitchell: I am sorry to interrupt the hon. Gentleman, who has only just started his speech. My hon. Friend the Member for Basingstoke (Mr. Hunter) might be a little disconcerted, because I represent Hampshire, North-West.

Mr. Snape: Well, I knew that it was a long way from West Bromwich. I do not wish to comment on speeches from any other quarter, especially before they are made.
I hope, bearing in mind your strictures, Mr. Deputy Speaker, that the House is not to be lectured by the hon. Member for Southwark and Bermondsey (Mr. Hughes) about the motion. Those of us who have the privilege of serving on the Select Committee which is examining these proposals — I shall not say anything about the Select Committee's work or I shall be ruled out of order — missed contributions from the Liberal party. They would have been welcome, given, as I understand it, that the minority parties were offered a place on the Committee but could not find the time, or perhaps did not have the inclination to serve on it. Before I arouse your understandable ire, Mr. Deputy Speaker, I should like to say on behalf of the official Opposition, who are diligently represented on the Select Committee, how much we support and applaud the motion. I commend it to those of my hon. Friends who are concerned and interested enough to be present to support it.

Mr. Keith Speed: I start by declaring an interest in that I am a director of the Folkestone and District Water Company which may well be affected by these proposals. I welcome the motion, the instruction to the Select Committee which it contains and the proposals for alternative arrangements for access to and egress from the tunnel terminal which lie at the heart of the motion.
I should like to make it plain that I discused the matter in some detail with my hon. and learned Friend, and near neighbour, the Member for Folkestone and Hythe (Mr. Howard), who, as a Minister, is not able to speak in this debate. My hon. Friend the Minister of State has already paid a considerable tribute to the true author of the motion. My hon. and learned Friend has always identified the access proposals contained in the Bill as one of the most damaging aspects, and he has made it clear that eliminating the environmental damage associated with that feature of the published scheme is one of his highest priorities. He has worked very closely with the Shepway district council in striving to identify an acceptable alternative. I know that he takes the view that the proposal that has emerged from the joint working group is an acceptable alternative.
That view is shared by the all-party fixed link executive which Shepway district council has set up to consider these matters. But since this alternative has already been the subject of widespread misrepresentation — my hon. Friend the Minister referred to this—my hon. And learned Friend the Member for Folkestone and Hythe has asked me to clarify certain aspects of these alternative


proposals. The alternative would achieve the elimination of several specific consequences of the original proposals. It would save about 50 acres of countryside. It would avoid altogether Beachborough park and Asholt wood. It would eliminate the severance of Newington and Frogholt from Peene and the downs, which was a particularly objectionable feature of the original proposals.
But, contrary to some reports, the alternative would not involve the demolition of any property in Pine way or any other part of Cheriton or the Cherry garden area of Folkestone. It would not involve a third lane on the motorway east of the Cheriton roundabout. It would not involve the loss of any playing area attached to Harcourt primary school. It would not involve any work to the east of the Cheriton interchange. It would not bring traffic closer to the area of Cheriton and Cherry garden avenue.
Indeed, those places will continue to benefit from the reduction of traffic on the motorway in the vicinity of those areas, which is expected to be a result of the Channel tunnel proposal. The overall effect of the alternative proposal is clearly beneficial and my hon. and learned Friend the Member for Folkestone and Hythe and I commend it to the House. It is a further example of the way in which my hon. and learned Friend has been able to work for his constituents, and of the response from the Minister and the group that he has been chairing, because flexibility has been shown, and people have listened to those holding views.
The motion is a vindication of the Select Committee procedure. It proves that the Channel Tunnel Bill is not writ in stone. It can be and should be altered if a reasoned case is made, and I have every confidence that it will be. The motion also provides for adequate and reasonable time fo those who may be affected by the new proposals to petition and to make their views known to the Select Committee. I commend it to the House.

Mr. Simon Hughes: I, too, on behalf of my party, welcome the motion. In response to a point made by the hon. Member for West Bromwich, East (Mr. Snape), I should say that I have no knowledge of offers made to minority parties collectively or specifically.

Mr. Snape: Perhaps I can assist the hon. Gentleman. I do not know whether the hon. Gentleman has a habit of listening to the radio 4 programme "Any Questions", but two weeks ago one of his distinguished colleagues said on the programme that an offer was made and rejected. An alliance candidate from that part of the world was acting as an agent on behalf of many petitioners, and said, I believe, that he would be putting the alliance point of view to the Committee.

Mr. Hughes: I have no knowledge of any offers made. But the hon. Gentleman is correct to say that one of our candidates is participating professionally in the Select Committee's proceedings. However, I do not propose to go into that as we are debating the motion, and the alternatives that it opens up. I have read the minutes of evidence given to the Select Committee, and I understand that the eastern exit proposal which the Minister rightly referred to, upset many people. I do not know whether the hon. Member for Ashford (Mr. Speed) was correct in all

that he said—that is more a matter of opinion than of fact. But there was great concern about the eastern exit and the lack of consultation about it. Representations have been made to the Select Committee expressing the opposition of local residents. The motion permits consideration of an alternative route—made as a result of the efforts of the working group, to which the Minister referred — containing a better set of proposals, particularly better in terms of their environmental impact.

Mr. Bob Hayward: The hon. Gentleman described some of the points made by my hon. Friend the Member for Ashford (Mr. Speed) as matters of opinion rather than matters of fact. Will he identify those areas which he believes to be opinion rather than fact?

Mr. Hughes: I was dealing, for example, with the effects on housing and the school at Cheriton. A great deal of evidence about the original proposal was presented by local people suggesting not that the housing or school would have to disappear but simply that there would be an environmentally harmful effect because of the nearness of the road alignment. Thus, the assertion that there would be no effect on the people in the area must be a matter of opinion. I was not disagreeing with the hon. Member for Ashford about his contention under the original proposal, but there would be no need to pull down or replace schools or houses.

Mr. Speed: I chose my words with care. I echo the point made by my hon. Friend the Member for Kingswood (Mr. Hayward) in that the hon. Gentleman cannot challenge anything that I said on fact. There will, undeniably, be environmental effects on the area. We believe, as does the hon. Gentleman, that they will be ameliorated by the latest proposals. My remarks about schools and playing areas were matters of fact. If the hon. Gentleman wishes to challenge them, he should do so in detail.

Mr. Hughes: I am not challenging the hon. Gentleman's assertion that there would be no direct effect on housing or schools. The assertions about the original proposals were always about their environmental impact on the sites that the hon. Gentleman described. So whereas there may be no disagreement between us about the direct effect on the housing or schools, there may be some disagreement between us on the environmental impact on the communities concerned.
The major advantage of the motion is that it provides us with an opportunity to adopt a different exit scheme, one to which members of my party and others have contributed. The new scheme is the working group's preferred proposal, for it was clear that the original northwest and the eastern exit plan would have damaged the environment.
The problem is that, despite the motion and any amended instruction to the Select Committee, the original proposal could still be approved. I hope that we shall not find that, despite an apparent degree of flexibility in this matter, there will be an ultimate unwillingness to take into account the environmental concerns that have been expressed about the alternative exit proposals.
Now that alternatives may be considered, I hope that we shall end up with the least environmentally damaging proposal. The recent working party proposal—it is still at an early stage of public knowledge— could have that result. But the Minister will agree that it too has not been


fully tested and that it is not clear whether, at the end of the day, it will prove to be the best option. On the evidence and knowledge that I have at present, however, it would appear to be preferable.
The Government's return to the House this evening to amend the instructions to the Committee manifests above all the haste with which the entire operation was conducted from the beginning. The Bill, and the inquiry into it by the Select Committee, was based on a rapidly changing set of proposals that had not been fleshed out. I hope that the Minister will accept that had there been more time, the amendment to the instructions would have been anticipated. There had been little time for the alternative exits to be canvassed and examined. One of the consequences of the speed with which the Government have proceeded — the pace has been their choice and they have heard dissent expressed by my right hon. and hon. Friends, Labour Members and Conservative Back Benchers—is the need to alter the ground rules for the Select Committee at this stage. Had there been more time, the need to alter them could have been anticipated before the Government proceeded and the further instruction would not have been necessary.

Mr. Roger Moate: If the hon. Gentleman is complaining about the lack of time for consideration of these matters, why did his party vote against the setting up of a public inquiry? I presume that the hon. Gentleman did so as a representative of his party.

Mr. Hughes: My party did not vote against the setting up of a public inquiry. My hon. Friend the Member for Isle of Wight (Mr. Ross) argued — there have been several debates on these matters and his speech is recorded in the Official Report—that there should be a short public inquiry. If I recollect correctly, he suggested specifically that the inquiry could be completed in about 20 days. That was his original view.

Mr. David Mitchell: The hon. Gentleman is complaining about the pace with which the Government are proceeding with this measure and yet at the same time he is advocating that there should be a public inquiry into a major project that will be completed within 20 days.

Mr. Hughes: The Minister is mischievously misrepresenting what I said. He might like me to have said that but he knows that I did not. He knows that my party would not have proceeded from the beginning in the way that the Government did. We would have had—this is our policy for all major proposals and projects, such as Sizewell as well as the Channel Tunnel — a public inquiry at the very beginning to determine the matter of principle.
The Government decided that the project should not be the subject of a public inquiry and that it would be governed by the timetable that had been agreed with the French. Having made that decision, the only argument left for the House to enter into—we did so in a debate that continued all through the night and I was present to ensure that the Liberal amendment, which was reached at five o'clock in the morning, was moved and discussed—was the need for maximum public participation in the work of the Select Committee. The Minister served throughout that long night and he will remember that it was my argument that the petitioners should have an opportunity to put their case as fully as possible. Tonight's proposals

widen that opportunity, but they are none the less evidence of the haste with which the Government moved generally. It has been necessary for the Government to return to the House, because they failed to anticipate everything at the beginning.

Mr. Hayward: Does the hon. Gentleman recall the occasion when the hon. Member for Isle of Wight (Mr. Ross), the official spokesman—

Mr. Deputy Speaker: Order. I hope that what the hon. Gentleman is about to say will be relevant to the motion, otherwise he should not make his remarks. We are getting away from the motion and I hope that the hon. Member for Southwark and Bermondsey (Mr. Hughes) will get closer to the terms of the motion. Mr. Simon Hughes.

Mr. Hughes: I am trying to complete my remarks, but there have been several diverting interventions.
I hope that, as a result of this extension of the powers of the Select Committee, there will be consideration not just of the land needed for access to and egress from the tunnel entrance but also a revision of the total land requirements. There is some dissent about the amount of land required for the whole proposal. There is also a belief that Eurotunnel may not require all the land currently available to it. I hope that the flexibility that will be given —which, in principle, is a good thing—will also allow the Committee and in due course the House to ensure that we are not handing over more land to the project than is needed. We are worried that the Bill provides for too much land to be affected by the proposal. Obviously, the harmful envirommental impact must be reduced as far as possible.
After studying the wording of the instruction, one remaining question must be asked. As I understand it, the second clause states in relation to the Committee
with respect to the access to and the egress from the terminal area by road it has power to make Amendments to the Bill if it thinks fit;
I would be grateful if the Minister would confirm that that gives the Committee considerably wider powers than those required to incorporate any of the material amendments now being considered before the Committee, for example the Working Group proposal, and that the Committee now has a completely wide and open brief with regard to the amendments. As well as giving the Committee flexibility to examine the alternative proposals for exit and entrance, which are the products of the joint working group, the instruction gives the Committee an open book in considering all other possible entrances and exits and all other amendments. The instruction allows a wide opportunity for amendment to the Bill.
On a matter of precedence and of information, I should be grateful if the Minister could explain whether the consequence of the instruction—if it is passed—is that any and every amendment made by the Committee within the terms of the instruction will be acceptable if the Committee so wish it. That would permit a much wider scope for the Bill than the number and specific content of the clauses in the Bill presently before the House.
I repeat that the motion is welcome. It appears to have all party support and I hope that it will assist the Committee in its deliberations. Above all, I hope that it will produce an opportunity for the least environmental damage in Kent, which is a beautiful county, as the Minister well knows. I hope that the instruction will allow


the Committee to consider more effectively the best and newest proposal to come before it, as to the place for best access and egress to the tunnel contained in the proposals in the Bill.

Mr. Roger Gale: I will be brief because I know that some of my hon. Friends have journeys to make home to Kent tonight along roads which are far from good.
Before I proceed, I think it is appropriate for a Tory Member to comment briefly on the contribution made by the hon. Member for Southwark and Bermondsey (Mr. Hughes). On the Conservative Benches it seems that the alliance parties are trying to have their cake and eat it. They voted to a man but one—the hon. Member for Portsmouth, South (Mr. Hancock)— who represents a channel port in favour of the project while the "candidate" —as the hon. Member for Southwark and Bermondsey referred to him, is trying to make considerable political capital in Folkestone at the expense of my right hon. and learned Friend the Member for Dover (Mr. Rees), by purporting to be against the proposals. It appears that the alliance cannot have it both ways at once. As my hon. Friend the Member for Richmond and Barnes (Mr. Hanley) has said, that might explain the alliance's absence from the Select Committee. This is a serious matter for Kent and the Conservative party and the Labour party are taking the matter very seriously. I hope that we shall hear no more from the hon. Gentleman. The House will have registered the fact that the candidacy has been declared, and we assume that the Liberal representative will from now on record his election expenses properly.

Mr. Simon Hughes: I hope that the hon. Gentleman will allow me to correct myself. Although I may have said "candidate", clearly I meant the prospective candidate. The hon. Gentleman asked me to say this on a previous occasion, and I gladly repeat it now: the Liberal party and the SDP have always believed—the hon. Gentleman must not misrepresent that — that there should be a Channel tunnel. That has always been our position. It is the method of arriving at decisions that has always been the matter of contention.

Mr. Gale: I am extremely grateful to the hon. Gentleman, because there was some equivocation from the alliance on that matter.
In a spirit of complete conciliation, may I welcome the motion, especially its breadth and scope. We hope that the words,
that it be an instruction to the Committee on the Channel Tunnel Bill that it has power to consider alternatives to the provision which is now made in the Bill regarding the access to and egress from the terminal area by road",
will include not only the immediate access but the access from the Thanet towns. We look forward to welcoming with an open mind my hon. Friend the Minister of State to Thanet, and I know that he received a good welcome in Folkestone and Dover. We also look forward to welcoming the Select Committee to the Thanet towns. We have no doubt that its members will go away suitably enlightened and that there will be further amendments to the Bill.

Mr. Roger Moate: I join those hon. Members who congratulated my hon. Friend the Minister of State on his lyrical exposition of his travels round Kent. May I say how much we genuinely appreciate the work that he has done. We know the efforts that he has made to understand local worries, and we look forward to the publication of "Mitchell's Rural Rides" with great interest. The motion is an attempt to introduce flexibility into the procedures and to deal with alternatives. I welcome the motion, but I hope that my hon. Friend can elaborate on one or two points.
May I take up some points that were made earlier in the debate—since they were made, they were presumably in order — by the hon. Member for Southwark and Bermondsey (Mr. Hughes). Some of us view with considerable — one uses one's language carefully —abhorrence — [Interruption.] I cannot use the word "humbug" because it is unparliamentary, is it not, Mr. Deputy Speaker? Perhaps I could call it the ambivalent attitude of the Liberal party—

Mr. Deputy Speaker: No; "humbug" is all right.

Mr. Moate: I am pleased about that, Mr. Deputy Speaker, because no word is more appropriate to describe the attitude of the alliance on this issue. The parties play one tune locally and the hon. Member for Southwark and Bermondsey plays a completely different tune here. Yet when he speaks in such debates he tries to pretend that it is the same tune. He and his Liberal colleagues voted against a public inquiry. On Second Reading, the Labour party tabled an amendment which declined to give the Bill a Second Reading on the ground that there had been no public inquiry, and the hon. Gentleman—assuming that he was here—voted against it. Yet now he complains that the options have not been sufficiently considered.

Mr. Snape: Unusually for the hon. Gentleman, he is not being quite fair to the hon. Member for Southwark and Bermondsey (Mr. Hughes), who has been entirely consistent. As that hon. Gentleman said tonight, the alliance is wholeheartedly in favour of this project, except where there are votes to be garnered locally by opposing it.

Mr. Moate: I am glad to receive that correction. We must all try to be fair to the hon. Member for Southwark and Bermondsey. He is passionately in favour of a Channel tunnel so long as it has no ingress and no exit, does no environmental damage and loses no vote in any street in the Folkestone area. The hon. Gentleman is laughing, but it is not funny because it is—I am glad to have free use of the word—utter humbug. Many people garner votes at every opportunity locally, yet the hon. Gentleman does not disown the campaigns mounted by local alliance candidates.

Mr. Simon Hughes: The hon. Gentleman knows perfectly well that a national party can take one view but that there may well be dissenting voices within it which are perfectly entitled to argue their corner. The alliance parties have always been in favour of a rail-only Channel tunnel, but people in Kent are entitled to take a different view and to try to minimise its impact.

Mr. Deputy Speaker: Order we are moving away from the motion before the House and should return to it.

Mr. Moate: Would it not be helpful if the hon. Gentleman would make absolutely clear that he disagrees with local alliance candidates and that the party disowns their views on the Channel tunnel?

Mr. Hughes: I have just said that the prospective local candidate and local parties are entitled to argue their case. I do not disown them. They are concerned, as we are here, to ensure that there is the least environmentally harmful impact on Kent.

Mr. Deputy Speaker: Order. Perhaps we can return to the instruction to the Committee.

Mr. Moate: Yes, Mr. Deputy Speaker. I am most grateful to you for expressing clearly the view that "humbug" is an acceptable phrase, especially in this context.
I cherish greatly the private Bill and hybrid Bill procedures. They are a great defence of the liberties of the individual. I am a little concerned about the terms of this proposition. Most hon. Members have at times served on private Bill Committees of this sort which frequently consider options. As I understand it, the Committee has the power to go beyond the options initially presented to it. As I understand it, the motion is before the House because an alternative has been proposed which affects the property and rights of individuals who would not have had a chance to petition or object under the original proposals, if that is so, we are grateful for the opportunity for those people to receive details of the proposals and to petition against them before 26 September.
However, the motion goes beyond that. It states that the Committee has
power to consider alternatives to the provision which is now made in the Bill.
The motion does not limit the alternative to the one which we are discussing, which my hon. and learned Friend the Member for Folkestone and Hythe (Mr. Howard) wants considered and which my hon. Friend the Member for Ashford (Mr. Speed) described so clearly. It is alternatives generally. What happens if this Committee, now empowered to consider alternatives generally, decides to consider other alternatives which may well be put forward by petitioners? That often happens on such Bills. The Committee is empowered by this motion to consider any alternatives.
The time limit for petitions is 26 September. What happens if the Committee puts forward alternative proposals which may involve compulsory purchase, extra noise on alternative routes and yet the dead-line for petitions is 26 September? On those grounds alone we should have some doubts about the validity of this motion. I do not want to stop the Committee from having this power — I think it is right that it should have such power—but we ought to be jealous of the scope of Committees of this kind.
I am a little puzzled because 26 September falls during the parliamentary recess and I wonder whether Parliament is empowered to receive petitions during the recess. I realise that the Committee is empowered to sit whenever it chooses—it can sit during August or September—but surely the petition is to Parliament and not to the Committee. It is up to Parliament to decide whether a petition should go before the Committee. If one of the proposers of the Bill should object to the vires of a

petitioner, the Court of Referees has to decide the matter. These are matters for Parliament and not for the Committee, but Parliament will be in recess.

Mr. Deputy Speaker: The hon. Gentleman should be careful on the vires point and the Court of Referees. As this is a hybrid Bill, the vires of a petitioner is decided by the Committee and not by the Court of Referees.

Mr. Moate: I am grateful, Mr. Deputy Speaker, for your correction on that point. I did not understand the procedure. However, I am puzzled that a Committee has such powers under the procedures of a hybrid Bill. Nevertheless, is not a petition a petition to Parliament and not to the Committee? If Parliament is not sitting in September, how can it receive petitions? In principle, these options should be considered, but I have a feeling that we are broadening the options too much.
I appreciate that the access/egress to the tunnel will be of immense importance to the local inhabitants, but in the context of the whole project I understand they are of relatively minor importance. My main concern is on environmental matters, an aspect which has not been widely echoed.
Essentially this is a rail-only tunnel, but it can also be described as a rolling motorway and it will generate an immense amount of traffic. All the traffic of the south-east and further afield will go down a funnel as it approaches the Channel tunnel. The heavy lorries will do the most environmental damage to the rural areas, the rural roads and the rural rides mentioned my hon. Friend the Minister. If we accept this proposition which allows an opportunity for consideration of a variation of the access/ egress of traffic into the tunnel, I ask my hon. Friend the Minister to ensure that it does not alter the fundamental proposition that the main route should be the M20 and not the M2.
If traffic is diverted to the north-east Kent coast. it may attract some people looking for jobs, but I am worried about the way in which it would divert heavy lorry traffic en masse up to the north and on to the M2. That would increase the pressure on the rural roads in my constituency which are already heavily burdened with unsuitable traffic. I would welcome the Minister's assurances on that point.

Mr. Jonathan Aitken: I, too, welcome the motion, although my welcome is accompanied by one or two doubts, anxieties and questions to which I shall refer in a moment, but not at any great length, so as not to detain the House.
I do not want to begin as though I want to damn the motion with faint praise, as praise is indeed due, especially and in large measure to my hon. and learned Friend the Member for Folkestone and Hythe (Mr. Howard). He is a pillar of the Government and works from within it. There is no doubt that, once again, he has done stifling work in defending the interests of his constituents by getting the instruction tabled.
There is no doubt that the Committee should be considering alternative plans to the original and what I regard as somewhat cockeyed scheme drawn up by Eurotunnel in its first view of what was needed for access to the terminal. I am glad that my hon. and learned Friend has pointed the House quickly and forcefully, and I am glad that my right hon. Friend the Secretary of State has responded sensitively and swiftly. So far, so good.
However fine the Government's intentions, if we examine the motion closely to find out what it really means, or if we stand back and take the broad view and see it in the widest possible context of the Channel tunnel project as a whole, certain doubts start to arise and multiply. The motion begins:
That it be an Instruction to the Committee on the Channel Tunnel Bill that it has power to consider alternatives
to the Bill and to make amendments. Some of us thought that such powers existed all along. Some 4,700 petitioners thought the same, because their petitions often began, "Please amend the Bill" and "Will the Committee please consider alternative proposals?". Why on earth does the Committee need some special instruction when it comes to access and egress roads around the terminal? Are there some sensational difficulties about them that are cast in stone so that the House of Commons has to be detained late at night just to pass a Government instruction to get the Committee to consider alternatives? That can hardly be so.
If we examine what has so far been said about access and egress roads around the terminal, we find that the Committee has considered the matter for some time. It would have been a most extraordinary Committee if it had not decided, at least in its mind, to recommend alternatives. As for what the current plans would do, I can do no better than quote Shepway district council, which said:
In practical terms, Newington Village Hall would have to be demolished in order to allow the works to proceed.
It is clear from evidence given to the Committee that rugby and cricket clubs would be destroyed, and that the whole focus of village life would be destroyed if the original plans succeeded. That was typical of Eurotunnel's rushed and cockeyed plan—demolish a village hall here, knock out a cricket club there, ruin a site of special scientific interest somewhere else, a few woodlands should go, all for the greater glory of Eurotunnel, and all to be done as cheaply as possible for the shareholders. That is an unacceptable attitude, and I do not understand why the Committee needs a special instruction from the Government to insist that Eurotunnel does not have the right to demolish a much-loved village hall and must put its wretched access road somewhere else.
What is the role of the Select Committee, and what should its style be? There were some prophetic words—modesty compels me to admit that they came from me —in the debate in the small hours of the morning on 5 June. I said:
It is essential for the people of Kent to feel that they can have considerable public confidence in whatever structure is created to hear their grievances and to propose amendments to the Bill.
If it was thought that a substantial number of placemen had been appointed to the Committee, that would be a great mistake. As my hon. Friend said, in a way it will be a judicial committee. I think it was Bacon who once criticised 15th century judges, saying that they were lions but lions under the throne. It would be a great pity to see a Committee of lions but lions under the Whips' Office. This must be an independent-minded Committee."—[Official Report, 5 June 1986; Vol. 98, c. 1238.]
Even if I had my tongue in my cheek somewhat when I was making all those jungle-type references to lions, at least I thought that we would get a Committee

independent minded enough to be able to stop a village hall from being demolished in order to build a road, without a special instruction from the Secretary of State.
I think that the Committee's reputation is in danger of getting a little tarnished, not just because it is not always obviously demonstrating independence—after all, that is a quality capable of many definitions—but because it is not necessarily listening fairly to all the evidence on these issues that might lead to amendments being tabled contrary to Eurotunnel's interest.
There was an episode today that is directly relevant to what we are discussing. It concerned Kent rugby club, and a witness came before the Committee complaining that he wished to give evidence in chief, as lawyers call it, that playing fields would be destroyed by the present scheme, but he was stopped from doing so and was instructed that the evidence could not be given and that he would have to submit to cross-examination. The Chairman wielded a very strong crack of the whip. From descriptions that I have received of this somewhat ill-tempered episode—we will, of course, read the report of the proceedings tomorrow with great interest—I have no doubt that the Chairman's handling of that witness was absolutely wrong.
We are inviting the petitioners to come forward and petition against the scheme. If not just me, or the witness, or his agent, but the lawyers who were present today are saying that it is monstrously unfair that someone should not be able to come forward and give his evidence in chief without being halted by a ruling from the Chair, I say that we do not want to see the Committee engulfed in a firestorm of criticism, but a few more steps down that road and it would be.

Mr. Snape: I hope that I shall not transgress the rules of order by what I am about to say. I think that the hon. Gentleman is making a grossly unfair attack on the Chairman of the Committee. He was not present when what the hon. Gentleman has described took place. A few minutes ago he was seeking information about an incident that had been relayed to him involving a member of the Committee who had never been present during the day's proceedings. I urge the hon. Gentleman, therefore, on this issue to get his facts right for once.

Mr. Aitken: I do not think that there is any danger of the facts being wrong, because tomorrow it will all be in the report of the proceedings. I am saying that any witness must be able to come before the Committee, give his evidence and get a fair hearing.
Let me remind the hon. Member for West Bromwich, East (Mr. Snape) and, indeed, all hon. Members, that the passage that was much quoted in the debates running up to the installation and establishment of the Committee was from the Select Committee on Transport's recommendations on how the hybrid procedure should work. Paragraph 27 of the report said:
The Committee recommends that … the fullest possible latitude again be allowed to petitioners, and that all those whose petitions conform to the basic requirement of relevancy be allowed to be heard.
I am simply sending down a warning signal that, if petitioners are denied the right to give their basic evidence, this controversy will rage again and again. All that observers of the Committee from the Back Benchers want is for no one to be able to say that people are not being heard fairly. Most of the time, I must say, that complaint


has not been raised, but it has been raised on several occasions. It is the Committee's own fault, because the Committee is giving the impression that what it cares most about is getting ahead and getting things done.
Indeed, the Chairman of the Committee, on 25 June, when he gave a ruling, rather bravely, forbidding lawyers to make opening speeches, said:
We are required also by the very nature of our constitution as a Committee of Parliament to take into account the parliamentary timetable.
The House knows perfectly well that there is no such thing as a parliamentary timetable. The Government may have a timetable in their mind, but it is the Committee's duty, I submit, to hear the evidence, and by all means get on with it as fast as is reasonably possible, but to be fair.

Mr. Moate: Does my hon. Friend agree, as confirmation of the point that he is making, that there is a fundamental difference between a Government timetable and what he referred to, quoting the Chairman, as a parliamentary timetable? The enormous privilege available to Bills going through the hybrid or private Bill procedure is that they are not subject to a timetable, because of the carry-over provision that allows them to go over the year and beyond, indefinitely if the House so wishes. This privilege is not available to Government Bills.

Mr. Deputy Speaker: Order. We are going very wide of the motion. I hope that hon. Members will stick to it.

Mr. Aitken: Out of respect for your ruling, Mr. Deputy Speaker, and because we have said enough about the timetable, which is not affected by parliamentary time, I shall move on. The Government may have pressures, but the Committee does not. My hon. Friend the Member for Faversham (Mr. Moate) is right.
The terms of the motion are extremely vague, although it is well intentioned. The main fear of the east Kent towns of Dover, Folkestone, Ramsgate and Margate is that not only will their hotels and shops lose business as a result of the Channel tunnel, but that they will not have much hope of regaining any new business from the tunnel if the exit roads sweep all traffic straight back to London without an opportunity for travellers to get into the depressed towns of east Kent. Therefore, the motion which tells the Committee to investigate alternatives, will give motorists a chance to turn right into east Kent, to meander through the towns and to spend their tourist dollars. That is a justified item in the public interest, although it might he an expensive item for Eurotunnel.

Mr. David Mitchell: As I understand the proposal, it is that the motorist should turn left to enjoy the benefits of visiting Folkestone, Dover and my hon. Friend's constituency.

Mr. Aitken: I have never been able to tell my left from my right, which is no doubt why I have never become a Minister in the Department of Transport.
A vital topic is; who will pay for the costs that may flow from this instruction—the costs of the new terminal and of any new access or egress roads?
Another important point is policing costs. It has been said that new access and egress roads will need extra policing. Here I ask a question, to which there has so far been a deafening silence, to try to clarify the contradiction between what is in the Bill about policing costs and what is in the concession agreement.
The Kent police say that, to police the Channel tunnel and the roads immediately surrounding it, they will need a completely new sub-division of approximately 200 police officers and all the buildings that go with such a proposal. In the Bill it is clear that all policing costs should be paid for by Eurotunnel. In the concession agreement there is a sign that the concessionaires will not have to pay any extra costs over and above those that ferry operators have to pay for policing costs for ferries. In other words, the concession agreement can be interpreted one way, so that the Eurotunnel consortium might have to pay for only 20 or 30 police officers, while the police say that getting on for seven or eight times that number of police officers are required. The Bill says that all the policing costs should be paid by the Eurotunnel consortium. This is a contradiction that has not been clarified. It is of great interest to the people of Kent, because a police officer costs about £25,000 a year by the time his salary and operating costs have been paid.
All this talk about money and who will pay means that we might be entering the world of make-believe. The Eurotunnel consortium has failed miserably to raise the first £200 million of equity for the £6 billion project. Its excuses for not doing so are extraordinary, ranging from the fact that it is the summer holiday to, as my hon. Friend the Minister suggested, new issues for international banks. The real reason, which has sneaked out, is problems with the construction contracts, which are relevant to access and egress roads, particularly with regard to the bill for them. Next week the Committee will hear explosive evidence about the finances o the Channel tunnel. It will demonstrate yet again how much credibility has been lost and how unlikely the projeect is to go ahead, for sheer reasons of money alone.
The text for this short debate should be the opening lines of one of Shakespeare's great soliloquys from "As You Like it":
All the world's a stage,
And all the men and women merely players:
They have their exits and their entrances".
This debate is not just about exits and entrances, slipped of course into the Euro jargon of ingresses and egresses. To debate the motion we have had to enter three make-believe plays in advance. We have had to make believe that the Committee needs an instruction to do this work. We have had to make believe that the Committee is doing an absolutely fair job in hearing every witness impartially. Above all, we have had to make believe that we are debating something that is real, which it is not until the money is there. As long as the money is missing, it is a fantasy and a nonsense. July is a mad month for Parliament. We are debating a non-necessary instruction about what I think will be a complete non-event.

Mr. David Mitchell: As I said earlier, the need for this debate has arisen because a number of petitioners have suggested that alternative access arrangements for the proposed Cheriton terminal would be preferable. This is a practical demonstration that both the Select Committee and the Government take local views seriously. Equally, serious account will need to be taken of the interests of any people who are liable to be detrimentally affected by the alternative access arrangements. The Government propose that they should have eight weeks to present petitions.
The hon. Member for Southwark and Bermondsey (Mr. Hughes) sought to make an interesting assertion on behalf of the Liberal party that he knew not of the opportunity for his minority party to serve on the Select Committee. I find that extraordinary, because hon. Members will recollect that we spent considerable time during the night of 5 June, well into the morning of 6 June, discussing the composition of the Committee. The hon. Gentleman was in the Chamber. I know that he dozed off at one point. We teased him about it, but I do not wish to be unfair to him because it was late. During the time that I took it that the hon. Gentleman was alert and interested in the debate we were discussing whether there should be eight or nine members on the Committee. The main point that was made was that having a ninth member would ensure that minority parties would be represented. Therefore, there was the astonishment that hon. Members have referred to when the Liberal party did not seek to take up the opportunity offered on that occasion. However, the hon. Gentleman accepted that there is a case for consideration of a change of route, so there is no difference between the Liberals and the Government on the motion before the House.
The hon. Gentleman asked how extensive are the variations to access and egress that can be considered by the Select Committee. The answer is, as wide as the variation in the advertisements that the Department of Transport will place. I shall come back to that in a moment because it is relevant to the points raised by other hon. Members.
My hon. Friend the Member for Faversham (Mr. Moate) asked whether the Select Committee had power to go beyond the powers contained in the Bill. The Standing Orders require the deposit of further plans and the issue of notices to landowners affected by this limited scope of alteration. The Committee may then consider the petitions against the specific amendments advertised. I make it quite clear to my hon. Friend that that does not affect north Kent. He mentioned the balance of traffic between the M2 and the M20. This is only concerned with access from the M20 to the terminal and immediately within the adjacent area of the terminal.
My hon. Friend inquired about the closing date of 26 September. He drew attention to the fact that that was in the parliamentary recess. He asked whether petitions will be valid if they are made when Parliament is not sitting. The answer is, yes; they will be perfectly valid. The motion ensures that that is so.
My hon. Friend the Member for Thanet, South (Mr. Aitken) asked why a special instruction was thought necessary. He thought that the Committee already had the necessary power. I understand his point. The whole purpose of the Select Committee is to consider alterations and alternatives. The Select Committee can reduce the powers contained in the Bill in respect of land acquisition, but it cannot increase them. We are changing a proposition in the Bill that takes the road round the side of the villages at the foothills of the escarpment and moves it nearer to the M20. While that would result in the reduction of one piece of land, it would result in the addition of a smaller piece of land at another site.
The Select Committee could recommend that there be a reduction. It does not have the power to add the additional piece of land. We seek to enable the

Department to advertise the identification of the precise piece of additional land so that those who would be affected if that land-take took place have the opportunity to petition the Committee in a counter-petition to those who seek that it should be incorporated. The Committee can then consider the pros and cons. The Committee must consider the pros and cons of the two alternatives. Many things can be said in favour of the alternative that we shall be advertising in due course, but there are arguments the other way. Eurotunnel may wish to draw the Committee's attention to certain arguments the other way.
My hon. Friend also asked who will pay the cost of revised access. That will form part of Eurotunnel's costs in exactly the same way as the initial access. He asked me about the police and the costs. The concession provides for Eurotunnel to contribute as for airports.
My hon. Friend asserted that Eurotunnel was having difficulty in raising the necessary funds. I believe that my hon. Friend enjoys a certain mischievousness in such matters. He has allowed his imagination full reign on this occasion. Eurotunnel has had no difficulties in raising the necessary finance. All that has happened is that it formed the judgment, on the basis of professional advice, that it would be more appropriate to raise the money after the holiday season. We must bear in mind that this is a joint funding with the French. The French holiday season falls somewhat earlier than ours. It is for that reasonable reason that Eurotunnel's professional advisers have suggested an alternative date for the funding.

Mr. Aitken: My hon. Friend seems to have assumed, rather rashly, the role of financial spokesman for Eurotunnel. I am interested to draw him out on that point.

Mr. Deputy Speaker: Order. I am sorry that I allowed the matter to go so far. It is clearly outside the motion before the House. Mr. Mitchell.

Mr. Mitchell: I apologise, Mr. Deputy Speaker, if I strayed outside the bounds of order. I was merely seeking to redress the balance in an area where there might have been misunderstanding. I should not wish my hon. Friend the Member for Thanet, South to be in the position, which I am sure he would not relish, where people took seriously the mischievous remarks that he has enjoyed making during these debates.
The purpose of the motion is to follow through the Government's frequently expressed intention that the Select Committee should be no mere cipher in the democratic process. It should be able, in the light of representations made to it, to take real decisions and to make real improvements to the principle of the Bill, decided on Second Reading. We do not know whether the alternative access arrangements which have been studied will, on balance, be perceived locally as an improvement. That will be for the Select Committee to judge. This debate is about giving the Select Committee the powers to take that decision, if it so chooses.
The motion should offend no one and could result in a better project. For that reason, I hope that the House will give it full support.

Question put and agreed to.

Ordered,
That it be an Instruction to the Committee on the Channel Tunnel Bill that it has power to consider alternatives to the provision which is now made in the Bill regarding the access to and egress from the terminal area by road, and that with respect to the access to and egress from the terminal area by


road it has power to make Amendments to the Bill if it thinks fit; and that any Petitions against such Amendments to the Bill presented by being deposited in the Private Bill Office not later than 26th September, in which the Petitioners pray to be heard by themselves, their Counsel or Agents, be referred to the Committee.

STATUTORY INSTRUMENTS, &c.

Motion made, and Question put forthwith pursuant to Standing Order No. 79(5) (Standing Committee on Statutory Instruments, etc.).

CIVIL AVIATION

That the draft Air Navigation (Noise Certification) Order 1986, which was laid before this House on 7th July, be approved.

BURIAL

That the Local Authorities' Cemeteries (Amendment) Order 1986, a copy of which was laid before this House on 2nd July, be approved.—[Mr. Peter Lloyd.]

Question agreed to.

Mr. Jeremy Hanley: May I ask you, Mr. Deputy Speaker, whether time is to be allowed to debate the Air Navigation (Noise Certification) Order?

Mr. Deputy Speaker (Mr. Harold Walker): The Question was put forthwith. The hon. Gentleman should consult the Order Paper.

East Surrey District Health Authority

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Peter Lloyd.]

Mr. Jeremy Hanley: On a point of order, Mr. Deputy Speaker. I rose on both occasions to speak on the Air Navigation (Noise Certification) Order, but I was not given the opportunity—

Mr. Deputy Speaker: Order. I heard the hon. Gentleman the first time and drew his attention to what is written on the Order Paper. In both cases he will read that these matters are
To be decided forthwith, pursuant to Standing Order No. 79(5).
That means that they cannot be debated and that the hon. Gentleman cannot speak.

Mr. George Gardiner: I am most grateful, Mr. Deputy Speaker, for this opportunity to raise the question of resources for the east Surrey district health authority on the Adjournment of this House. In doing so my purpose is twofold. First, I wish to voice the concern of my constituents about the fact that, despite all the Government's increased expenditure on the National Health Service—by no less than 24 per cent. in real terms since 1979—the actual service available to them over the coming months is likely to diminish; and, second, I shall suggest that some conclusions might be drawn from east Surrey's experience that are of more general relevance to the Health Service, explaining in part why there is such a wide gap between the Government's knowledge of the increased resources being poured into the Health Service and the public's perception of the quality of the end product available to them.
The east Surrey health authority covers the major part of my Reigate constituency, the major part of the Mole Valley constituency to the west and all of the east Surrey constituency. It serves a total population of 180,000 and it has a management record or which we can be proud. By reorganising patient services and selling surplus property, it has made possible the construction of a new district hospital of the highest standard, which was opened by my right hon. Friend the Prime Minister nearly two years ago. In some instances there was public opposition to the closure of small local hospitals, but there can be no doubt that the quality of medical care provided by the new east Surrey hospital is of a far higher order, one example being in ophthalmology.
Since that hospital was completed, the authority has raised nearly £5 million from the disposal of surplus properties, and planning consents have been obtained on further land and buildings. That should yield an additional £6 million. These capital receipts open the way to a number of exciting new developments. Construction of phase two of the east Surrey district hospital, effectively doubling it size, is scheduled to start next year. Work has already begun on a residential unit for the young severely disabled at Harrowlands, in Dorking, which will be the first of its kind in Surrey, sharing its facilities with patients from the neighbouring mid Surrey health district.
There is already a new day unit at Caterham Dene, and new day hospital facility for the elderly at Oxted. In Redhill, facilities for elderly long-stay patients have been


upgraded. I cite these simply as examples of significant improvements in Health Service provision that have been and are being made possible through skilled management of the district authority's capital resources. Meanwhile, in an older hospital building at Dorking, we have a regionally funded orthopaedic unit that has won international acclaim for its hip replacement work, and where one surgeon performs 25 per cent. of the hip replacements in the 13 health districts of the south-west Thames region.
I turn next to the authority's management of its current resources, with particular reference to acute hospital services. For some years it has been evident that the east Surrey district was, and would continue to be, a loser under the RAWP system for securing re-allocation of Health Service resources throughout the United Kingdom. I shall return to that matter in greater detail in a moment. The obvious conclusion to be drawn form this was that, if an acceptable service was to be maintained, much more efficient use would have to be made of the modern hospital facilities to which I have just referred. That greater efficiency has undoubtedly been achieved.
Over the four years from 1981 to 1985, the number of beds in our acute unit hospitals decreased by 20 per cent. and the number of staff serving them decreased by 13 per cent. Yet the number of in-patients treated increased by nearly 10 per cent. while the number of out-patients treated increased by 8 per cent. Thus, over these four years the east Surrey authority can point to a productivity gain approaching 33 per cent. This faster throughput of patients and more efficient use of available beds has had its effect on the authority's in-patient waiting lists.
On 31 March last year the Secretary of State published the numbers on the waiting lists for every district health authority, which revealed that east Surrey's lists were among the shortest in the country. Today that total on its waiting list is easily the lowest in the entire south-west Thames region, while all our major surgical specialties achieve throughput levels above the regional and national averages. Thus in the efficient management of acute hospital resources the story from east Surrey is one of success. Yet, as I shall show shortly, for that success we are having to pay a bitter price.
This brings us face to face with the RAWP system, which is intended to secure a fairer distribution of Health Service resources between the different regions of the United Kingdom, ending the former concentration on London and the south east. This in itself is not an unworthy objective, and it is apparent, even within the south east, that many of the cases which at one time would have been referred by GPs to consultants at the London teaching hospitals are now treated within their own districts.
In view of the political capital that some seek to make from the consequent cuts in hospital provision in the south east, it is worth reminding ourselves that the RAWP system was introduced in 1976 by Mrs. Barbara Castle, when Minister of Health, and that it was advocated enthusiastically by her Parliamentary Secretary, the right hon. Member for Plymouth, Devonport (Dr. Owen), who is now, of course, leader of the Social Democratic party.
The RAWP system has been continued by the present Government, though it is now under review. I can only comment that such a review is long overdue, and I hope that the east Surrey experience that I now describe will be

taken on board by those conducting the review. The evidence is that the operation of RAWP, while increasing the health resources in many regions, is at the same time penalising increased efficiency in the "loser" districts.
Until early this year the authority was working to a planned £450,000 per annum reduction in its revenue allocation under RAWP — which, as I have already indicated, represented a very considerable constraint. However, in May it was informed that this saving or "cut" was being increased to £700,000 per annum — a horrendous additional burden to be imposed on what was already a decreasing expenditure programme. In the acute unit alone, £442,000 had already been trimmed from the budgets over the past year, and this sum withdrawn from the allocation available for this year. Yet, unless services were curtailed further, there would still be a substantial overspend by the end of the current year. Immediate further economies had to be effected while consideration was given to more radical long-term options.
Accordingly, on 4 July, a letter was sent to all GPs in the district detailing a rolling programme of overlapping acute unit ward closures for a month at a time during the summer. At the East Surrey hospital, three wards handling cases of general surgery, urology, orthopaedics, general medicine and rheumatology are each closing for one month; at Redhill hospital, two wards providing gynaecology and ophthalmology; at Dorking, one ward handling general medicine; while at Oxted surgical specialties are being withdrawn for a month while the operating theatre is upgraded. Throughout the summer, cases coming under these headings will he able to be treated elsewhere in wards that are open, but the inevitable result of these temporary closures will be to increase waiting lists and postpone for many patients the day when they had expected to get the treatment or surgery they require. Meanwhile, at Netherne psychiatric hospital a ward closure has been brought forward. All these, of course, are short-term measures, while the authority investigates what more severe economies will have to be made.
Thus, the east Surrey authority is paying a high price for its own success; for the fact is that the RAWP system makes no allowance for the increased total of per patient costs that accrue from achieving a faster throughput of patients and making more efficient use of the system. Yes, of course, with faster throughput the bed costs and nursing costs per patient are lower, but the total cost of what we might call the fixed overheads per patient rise—the costs of X-rays, pathology, drugs, blood and so on. The sad conclusion facing the east Surrey administrators is that their authority would be in a better financial position today if they had not increased efficiency in the way that they have, but simply allowed the waiting lists to grow. I ask my hon. Friend the Minister to consider also the effect that this must have on staff morale.
In our case, it is already difficult enough to recruit staff, especially those with professional qualifications, on the same nationally approved salary scales as apply in other parts of the country with significantly lower housing costs than we encounter in Surrey. In east Surrey's case, there has been until now the stimulus of joining a team that is improving performance in patient care and making a significant impact on waiting lists. But when that goes, what is left? What incentive is there for a young person


trained in medicine to join an authority in which his or her scope for securing improvement must continually be curtailed?
I submit that all this points to a major defect of the RAWP system—that it gives no incentive to increasing efficiency within those health districts that are "losers". Ministers say a lot about getting value for money within the NHS—an objective that I entirely support—yet the manner in which RAWP operates has precisely the opposite effect. I must in all honesty relay to my hon. Friend the Minister a theory put to me by one hospital administrator in the course of my inquiries—that the most prudent way to proceed was to avoid glaring inefficiency on the one hand, while eschewing notable efficiency on the other. As he put it, somewhat sadly:
The best way to survive in the Health Service today is through mediocrity.
I therefore ask my hon. Friend the Minister to ensure that the current review of the operation of RAWP takes this serious flaw into account; and that it considers the merits of a system whereby "the money follows the patient", wherever he or she happens to be treated. Furthermore, I ask my right hon. Friend the Secretary of State, through him, to ensure that significant changes are made soon, before many more of the achievements of health districts such as east Surrey's are destroyed.

The Parliamentary Under-Secretary of State for Health and Social Security (Mr. Ray Whitney): I am grateful to my hon. Friend the Member for Reigate (Mr. Gardiner) for raising this matter. I should like to offer some general remarks, but if, on studying his comments, I find that I should provide more details, I shall write to him. I shall carefully study his points about the RAWP formula.
Nationally, regional targets are set which aim to give a fairer distribution of the available resources between regional health authorities, based on such factors as age, morbidity and patients' movement across health authority boundaries for treatment. At regional and district level, the emphasis of the redistribution of resources is to provide equality of access to services. In essence, this means enabling those parts of the country which have inadequate facilities to look after the health care needs of their population to build these up. On the other side of the coin, some districts which have until now enjoyed a much more favourable level of provision are asked to take part in a fairer sharing out of the cake. I hope that my hon. Friend will accept that as a general principle, albeit taking cognisance of the problems of the policy to which he referred.
The Government have a duty to make sure that the way public money is divided up in the NHS works as well as it possibly can. Although we firmly believed in the RAWP process, we recognised the feeling that the methodology used in the calculations was ripe for a critical review. My right hon. Friend the Secretary of State for Social Services therefore announced last December that he was setting up a review of RAWP which would include an examination of the appropriate factors to be considered. Requests have been made that a report of the review should be with Ministers before the end of the year.
The effect of resource redistribution at the district level means that some districts have to face the fact of lower

expectations. East Surrey is indeed one of South-West Thames' "losers". I hope that my hon. Friend agrees that, put in context, the picture may not be as bad as it appears.
When the South-West Thames regional health authority produced its 10-year resource assumptions for its 13 districts in 1985, East Surrey was considered to be over target and expected to take a drop of £4·5 million in annual revenue relative to other districts by 1993–94. So far, the district's rate of movement towards its long-term revenue target has been as originally planned. It is no worse off than it expected and has an additional £22·5 million pay an price uplift this year — no more than other districts in the region got, but certainly no less. The recent recalculations look at first sight to make East Surrey worse off, but the fact is that some corrections which were done to the calculations of the district's longterm commitment for providing care for old long-stay patients from outside its boundaries showed that it would have fewer patients than had earlier been thought. An appropriate amount was therefore deducted from its revenue target, but this was fully compensated for by a real reduction in the amount of care it would need to plan for. In fact, I understand that the district will be slightly better off in real terms.
East Surrey has not missed out on new developments. As my hon. Friend said, only two years ago the Prime Minister opened a new district hospital in Redhill, built at a cost of £17 million, and I was glad to hear my hon. Friend's remarks about the high quality of service being provided in that hospital. A further phase of development is now under consideration, costing about £12 million, arid the regional health authority has agreed to try to bring forward a start on this block to allow the district to achieve more savings through rationlisation. All this is helped by Government injections of capital resources and our policy on land sales, which gives districts the benefit of proceeds from sales to develop their services in the best way for the local population.
South-West Thames regional health authority has calculated that the East Surrey district is over-targeted in revenue terms, and will give it a slightly decreasing share of the region's resources over the next seven or eight years. This, in turn, will allow those parts of the region which are under-provided and below target to build up services for their local populations. We acknowledge that this causes problems in districts such as East Surrey, and we understand the pressures, especially where the district is already efficient, and my hon. Friend gave examples of the district's efficiency.
Improvements in activity rates in recent years are clear, and I acknowledge them. The staff involved deserve recognition of their hard work and dedication. A few striking examples are patient throughput rates in trauma and orthopaedics, which are in the top 10 per cent. nationally; they have high levels of district nurses to attend the elderly and a high rate of contact with these patients; they are doing well in providing mental handicap community unit beds and community mental handicap nurses; and the ratio of direct care staff—those involved in treating and caring for patients—to indirect care staff is well above average.
But East Surrey is not the only health district in South-West Thames—let alone in the country — which is making improvements and achieving higher levels of performance. Every district has been asked to review its efficiency levels and to use the available resources in the


most cost-effective way it can. They are using performance indicators to show up areas where improvements can be made, and their cost improvement programmes are helping to release cash to pay for service developments.
Whether a region or district is set to gain or lose, it is vital for the health authority to make every penny count. The purpose of the NHS is to treat and care for patients. The more economy and efficiency measures that can be introduced, the more money will be available and the more patients can be treated.
While I congratulate my hon. Friend's local health authority on its fine achievements, I must stress that there are fields where there is room for improvement, such as savings from competitive tendering for house-keeping services, where as yet less than half of the services have been put out to tender. Progress has been made, but it has some way to go with its laundry services and it must make a start on the catering. There is need to look at the use of day care treatment, which seems lower than elsewhere. In some specialties, day case rates are less than one-fifth of the national average. The length of stay of elderly patients also seems high, and that, too, could be looked into.
I wish to place the situation in east Surrey against the background of what this Government are doing for the NHS nationally, efforts to which my hon. Friend paid tribute. The Government have recently added an extra £50 million to health authority cash limits in England, following decisions on this year's pay awards. Of that money, more than £16 million will go to the Thames authorities and to the special health authorities in London; £7 million will go to the north western and Mersey regions; £5 million to the west Midlands; and over £3 million to the Yorkshire and Northern regions. Those are substantial additions.
That has been achieved in a year in which we have already allocated about £650 million more to hospital and community health services in England. That represents a 6·7 per cent. increase nationally on revenue to the NHS. With the extra £50 million, we are talking about growth in real terms of well over 3 per cent., the highest figure since 1980–81.
Health authorities throughout the country plan to release a further £150 million this year, with more planned

increases in activity and productivity within existing resources. Health authorities are benefiting also from the fall in general inlation that has been brought about by the Government's policies. There will be a real increase in spending of 24 per cent. after allowing for inflation. That is the Government's proud record since coming to office. I know that my hon. Friend recognises that, and I hope that he will accept that the public's perception is that there have been improvements in the service. My hon. Friend —who better than he?—will understand the difficulty of putting across the achievements of the Health Service. I remind him of a recent study that was carried out independently of the Government which showed that about 87 per cent. of those polled were very satisfied or fairly satisfied with the treatment that they had received within the NHS. It is important to remind ourselves that those who have experience of the Health Service, as opposed to relying for their knowledge of it on the media, understand that significant improvements have been achieved since 1979.
Capital spending programmes and improvements in hospitals continue to be undertaken, and it is right that we should claim credit for using the public's resources wisely and effectively. We recognise, however, that the policy of redistribution causes strains, especially for RAWP losers such as East Surrey. I hope that my hon. Friend will recognise that East Surrey has enjoyed a higher level of provision than some of its neighbours. It has shown already that it is capable of rising to the challenge and finding ways of saving money which do not reduce patient care. I hope that it will be encouraged to believe that still more can be done in that direction on the lines that I have suggested. There is still scope for cost improvements within virtually every health authority and I am sure that all authorities will want to exploit them to the full. I do not believe that East Surrey is an exception and I hope that the authority, with the co-operation of the staff, to which I pay full tribute, will be able to continue to use the resources which are being made available to ensure that the health care that is delivered to my hon. Friend's constituents will continue to improve and not deteriorate.
Question put and agreed to.
Adjourned accordingly at twenty-two minutes to One o'clock.